A business valuation provides the management of business with numerous facts and figures pertaining to the actual worth or value of the company in terms of market competition, asset values and income values.
AMA uses distinct valuation methods and generally, any one of the methods or a combination of these are put in use, based on our judgement and availability of data.
- Income Approach (Discounted Cash Flow Method)
This is one of the most severe approaches in the process of valuation of a business. In this, estimation of future cash flows for the businesses, the time frame for the cash flows, and the projected free cash from operations are discounted at the weighted average cost of capital. To arrive at the value of business, the sum of these discounted free cash flows combined with other considerations like the terminal capex and perpetuity growth rate of the business are accounted.
- Market Approach (Market comparable)
In the Market approach, data from comparable transactions – ideally within the same sector and the same region, are used in order to arrive at valuations that have been obtained for companies. This approach can be used in a stand-alone manner, that is only if there are such comparable transactions that have occurred in the recent past and also, if there is any reliable data available for these transactions in order to perform a meaningful analysis.
- Asset Approach (Net Asset Value)
The Asset approach involves the actual verification of assets in the entity and the computation of the value of these assets. This is applicable when the realizable value of assets is significantly high. This method is applied in the case of asset-heavy valuations and work with qualified technical valuers.
