The Difference Between Valuing an Owner-Operated Business and a Public Company

Owner-Operated Business and a Public Company

The business and company asset valuation service is very popular. This trend has been especially pronounced in recent years. The reasons for this procedure may vary. In 99% of cases, the assessment should be carried out professionally. Often it is required to contact independent companies for an unbiased expert answer.

What Is a Business Valuation?

The value of assets is often determined by how much they can be sold for. The same appraisal can be used to establish the value of not only the property to be sold but also any other similar property. Consequently, the value of assets can sometimes be inferred from recent transactions in similar assets. The value of many types of property can be accurately and without much difficulty determined simply by starting from the value of such property on the market.

Business valuation necessarily implies a thorough knowledge of the basics of doing business and an exceptional understanding of the methods and approaches to determining the value of a company. Business valuation is the process of determining its current market value. Includes many actions that reveal the price for the current date. Important details:

  • the cost must be reasonable;
  • the price is valid on the date of conclusion;
  • the analysis is carried out comprehensively and as detailed as possible;
  • all arguments are set out in the document – the conclusion of the assessment.

With the valuing method, the basis for the calculation is the purchase price of a similar business as a whole or the price of a block of shares. In the capital market method, the price of one share is calculated depending on the price of a share in a similar company. The method of industry coefficients is the ratio between the value of a business and its financial performance.

To evaluate a business, you need to calculate the industry indicators of different enterprises. For example, for oil and gas companies, the coefficients are based on the ratio of the value of the company and the volume of reserves and for telecom operators – on the ratio of price and user base.

What Is the Difference Between Valuing an Owner-Operated Business and a Public Company?

  • Public companies differ from owner-operated companies in that their shares are listed on the stock exchanges, and the public has access to buy shares in these companies at a market price, and public companies, in turn, have the opportunity to raise capital from the public.
  • Thus, public companies, unlike owner-operated businesses, have a much wider pool of investors. Investors in non-public companies also tend to have a say in decision-making or have a greater degree of influence over the company’s business decisions.
  • In public companies, the minimum set of information is regulated by law. The company benefited from information disclosure, and increased transparency because this increases investor confidence.
  • There is practically no financial information in the public domain, and what is available is most often unreliable. The company has no motivation to disclose information to the public; it does nothing for it.
  • The cost of operating assets is usually estimated using the discounted cash flow method. This is the main part of the business, and in valuation, it is considered that its value is determined by the income that this business is able to bring to investors, taking into account the discounting of future income.

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