How is the value of a company usually determined?

How is the value of a company usually determined?

The value of a company se establece principalmente en función de su capacity to generate cash flow in the future. This capacity encapsulates not only the necessary money for new investments, distribution to shareholders or payment of debts, but also to the potential contriibution of intangible assets that enrich the accounting aspects. Among these intangible assets are brand value, operational efficiency, recognition, customer base, and organization, among others.

Regarding the methods for calculating a company’s value, three main approaches stand out:

• The first one is multiple valuation, which consists in comparing the company with similar ones that are listed on the stock market or have been recently sold.
• The second approach is valuation through discounted cash flows, which is based on estimating the future cash flows that the company will generate and discounting them to present value.
• The final approach is valuation by net equity, which involves adding up all the company’s assets and subtracting its liabilities to determine its value.

Each of these methods has its own advantages and disadvantages, and the choice of the appropriate approach can depend on both the type of company and the purpose of the valuation.

Related concepts

• Businesspeson
• Partner
• Shareholder
• Statutes of a Limited Liability Company with a Sole Administrator
• Statutes of a Limited Liability Company with Joint Administrators or co-Administrators
• Statutes of a Limited Liability Company with a Board of Directors
• Statutes of a Limited Liability Company without a Defined Administrative Body