Business Valuation Services in Arizona
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Industry practitioners and professionals performing business valuation in Arizona use three main approaches. These approaches are precedent transactions, comparable company analysis, and DCF analysis. The valuation methods are primarily used in finance, leveraged buyouts, mergers and acquisitions, corporate development, private equity, and banking.
When valuing your business in Arizona, you will use the cost approach, which includes the cost of building or replacing an asset. The cost approach is suitable when performing valuations for various properties. Financial institutions and professionals rarely use the technique for valuation.
The following method is the market approach. It is a standard method for providing a relative valuation of investments. Using this method, you must perform a comparative analysis of recent and precedent transactions.
The discounted cash flow (DCF) method provides an intrinsic approach to valuation. It is a thorough and detailed method.
Wiley Financial employs these methods to help your business find its valuation for taxation, partnerships and court proceedings.
Basics of Business Valuation
Business valuation is an essential aspect of corporate finance. Investors perform business valuation in Arizona during acquisitions, merges, or purchasing companies. These valuations are important when evaluating every part of a business using objective measures to determine its worth. The business valuation considers the capital structure of a business, management and projected future earnings.
Depending on the nature of your business, a valuer will use different tools to find the worth of your business. A business valuation company will likely use cash flows from your peer businesses review your financial statements. In addition, The Internal Revenue Service (IRS) requires that you perform the business valuation for your company for tax reporting. Some aspects of business transactions are conducted according to the valuation of a company.
Business Valuations in Market and DCF Approaches
It is also known as public market multiples, equity comparables, peer group analysis, or trading multiples. Comparative analysis is a comparative valuation method where you compare your business’s current value with other peer businesses in the market. Professionals achieve this by using valuation ratios such as EV/EBITDA or P/E multiples. EBITDA is the most commonly used multiple in business valuation. The comparable analysis reflects the business valuation based on the worth of other similar businesses in the same industry. Most current valuations use this method because it is easy to calculate.
It is another form of valuation based on a comparison with other businesses. The difference between this approach and comparable analyses is that the value is based on recently acquired businesses. When calculating the value of precedent transactions, the take-over premiums are included. The valuation data from precedent transactions are important for mergers and acquisitions. However, this method is less used when compared to trading multiples and comparative analysis.
Discounted Cash Flow (DCF) analysis provides intrinsic business valuation. When using this method, valuation analysts project upcoming cash flow. The discount is returned to the current Weighted Average Cost of Capital (WACC). A proper DCF analysis is designed in an Excel format. A formula with a financial model is established. However, this model requires more details and extensive research.
DCF Analysis is the most detailed and comprehensive than the other valuation methods. When using this approach, you must develop many assumptions and estimates in the model. The DCF Analysis is accurate because of the detailed data. It also allows forecasting a business valuation based on different projections and scenarios. You sum several parts of individual DCF models when your company is large
How to Prepare for Business Valuation
Because the valuation process is complicated, you will need a professional. For smooth operations of your business valuation, organize your financial information. Other documents include deeds, profit and loss statements, tax returns and business overview. If you get your financial information in order, you are sure of getting real value for your business. Take into account all kinds of equity, including the assets.
The best way to include all the company equity is to declare the resources such as assets and liabilities, investment and capital. Other items to add are intellectual property and employees. You can categorize your assets into tangible and intangible assets. Tangible assets include equipment, inventory and cash. On the other hand, intangible assets include patents, intellectual property, brands and customer loyalty.
Record all your liabilities, such as outstanding debts and credits. These liabilities include notes and accounts payable, loans, and expenses.
Have a structured business plan and business model. A business plan helps you project your worth and the market growth. A business model provides a clear picture of how your business makes money. Familiarize yourself with the industry to get crucial valuation information from buyers and sellers. The market trends and comparable will help you estimate the value of your business.
Wiley Financial provides objective and trusted business valuation in Arizona.