“Valuation of an enterprise involves many factors, from data collation and analysis. To understand the business strategy of the company being valued. The position of the company in the industry and the impact of general economic trends on the business are also to be considered. In fact, most of the time, it is these points, such as strategy and economic environment, which impact the valuation more than anything else. In the case of a transaction between two or more parties, it can also sometimes; boil down to what price the buyer is willing to pay for the stake in the company versus what price the seller is willing to sell the stake in the company for.
Valuation models use a substantial amount of data and quantitative information as inputs to arrive at the final valuation numbers. There is, however, also room for a lot of subjectivity in these numbers. For example, if we take a relative method of valuation, how do we select companies that are comparable? Do we select companies in the same industry or those which have the same size as the company we are trying to value? The selection of our sample and application of this method may lead us to different values in both these scenarios.
To understand more about the process of valuation and some key methods of valuation,please read on…”