Evaluation of medium and family companies

The real estate valuation, for example, depends on identifying the expected future returns from real estate through measurement on similar real estate, while the valuation in companies depends on finding the value of the company originating from what the company will generate during the next life stage based on its history and contemporary situation, and here the question arises as to whether the same valuation methods are used with multinational companies and large international companies in the medium and family sector, and the answer is that there is no difference In the evaluation between small and other medium and other family companies, the evaluation of all legal entities will depend on a consistent intellectual approach, which is to measure what this establishment will generate in the future based on its history and contemporary state, and here the question arises about how can I evaluate medium and family companies, and can I do this assessment myself as the owner and manager of this family company, and the value that I will get from this assessment is important and reliable, and can the impact of the company as an investment opportunity for everyone who wants to invest, and will the local and international stock exchanges agree to list my company on the stock exchange will this assessment need to be updated periodically every These and other questions will be answered successively through your company's value chain

There are different ways in which companies are evaluated, and each axis may work separately, and they may be evaluated together through relative weights

First, the discounted cash Flow method (Discounted Cash Flow-DCF)

The method of discounted cash flows is based on two main axes:-

The first axis history

The second axis is the future

The method of discounted cash flows in estimating the value of the company through the two previous axes is treated as if the wings of a bird, the investor will not accept to invest in a project without these two dimensions, an establishment with a history of successes and a dark future can not invest in it, as if you will invest in a factory that was manufacturing there are many questions and it will not be attractive for investments in normal situations, so the method of flows deals At the same time, the historical financial statements of the previous 3 financial years and the intellectual approach is clear in this requirement, this method sets its eyes on the future, where the future is a set of assumptions that management may succeed in achieving or God forbid may fail, this method, on the contrary, resorts to looking at history to verify that this management is able to achieve these future assumptions in light of

And the previous paragraph blows up a bunch of definitions at which we should stop

Company value :

The higher the company's ability to generate cash, the greater its value, whether this cash generation is the result of the entity owning a large amount of fixed assets, equipment and human resources, or owning it for a month, knowledge rights, or owning both, the lesson in the end is the ability to generate cash, but not only cash, but discounted cash

Discounted cash

It means the current value of money discounted at the discount rate that the investor pleases, which is a method that depends on two variables :-

The length of the cashback period

The later the cashback period of the investment project is, the higher the discount rate, and therefore the current value of the cash on which the accounts are based is much lower

The discount rate that the investor is satisfied with

The discount rate reflects the opportunity cost of capital, that is, the expected return from an alternative investment with the same level of risk.

3- Future plan ;

It is an integrated vision of the financial performance of the facility over the next 5 years in the light of previous experiences or the knowledge of the people of the industry in their industry, this plan starts from the perception of the sale and the subsequent perception of the necessary costs to achieve it and the subsequent perception of the movement of The Associated stores and

4. historical financial statements

It is a report through which the investor can familiarize himself with the financial performance of the entity in a historical manner, i.e. for years past, so that through these lists the investor can understand how the management of this entity was successful or reduced from achieving its goals and the goals of its shareholders, and consequently, through this management can reach a vision about the extent

There is a major weakness that surrounds the discounted cash flow method

These figures may be misleading even with the use of weighted relative weights for different valuation methods and other valuation methods address this weakness, which we will address in the coming articles

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