In the field of business investment, many techniques are used so that you can have more security about financial investments. This is valid for the investor who deals with the stock market or even for an entrepreneur who plans to become a partner in a company.
One such technique is the valuation, also known as the “intrinsic value” of a company. In this article, we are going to discuss what that means and why you should master the use of this evaluative model well.
What is valuation?
‘Valuation’ refers to the economic-financial evaluation carried out to systematically estimate the value of a company or startup.
The valuation aims to establish the “intrinsic value” of a company. It is, then, a method that aims to find out how much a company is worth in the market.
Thus, it adopts quantitative methodologies, without, however, disregarding other elements endowed with subjectivity, such as the relevance of the brand, intellectual capital, and relationship with customers, among others.
There are some techniques that investors use to define the valuation of a company. It is also very common for the company itself to do the calculation and, thus, have a better idea of its future dividends, in addition to other advantages that we will discuss later in this text.
Even if these calculations exist, it is not possible to say that they are exact, that is, that their value is absolute. This is because even the analysts themselves differ on the best way to arrive at an accurate valuation, which data should be analyzed so that the projection is more correct.
And, even if the best methodology is applied, there are uncertain factors that can change the initial calculation. This means that a company may face unforeseen events that affect its value.
Other eventualities can be linked to the loss of customers, for any reason. These variables, then, are incalculable and can completely change the result expected by investors.
Therefore, it is necessary to be aware that a valuation is never static and definitive and must be done only by professionals. For this, it is better to choose transaction and valuation services.
The importance of calculating intrinsic value in an investment analysis
The techniques involved in calculating the intrinsic value of a company are fundamental to be surer if negotiation is worth it. This, as we said, is valid both for an investor seeking profit in shares and for entrepreneurs looking to associate themselves with a company.
Therefore, we separate below two important reasons why the valuation calculation should be considered in an investment analysis.
Real value
This is perhaps the most important reason when it comes to investing. Being able to predict some steps when there is a search for profit is fundamental in every negotiation. That’s why the advantage of knowing the valuation of a company is so important. Thus, it is possible to know if a company presents risks or is of high value.
Having a sense of the real value also prevents the investor from falling into some business just for speculation, without being so sure of the success of the investment.
Investment funding
It is common for a company to do this valuation calculation to attract investors on the stock exchange or to prove that a company can be successful. When done by experts, valuation is an excellent tool for raising money.
Now that you know the importance of this tool, why not choose transaction and valuation services? Having the support of transaction and valuation services at your side will help you in this process and is the best way to ensure that the result comes out accurately.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.