How to value a company (with definition and jobs list)

By Indeed Editorial Team

Updated 12 September 2022

Published 3 January 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Company valuation is an essential exercise for businesses that may wish to sell their company. When it comes to how to value a company, there are a variety of methods you can use to calculate its worth and share this information with interested stakeholders. You can use business valuation methods to make a plan for the future of your company and determine its profitability. In this article, we discuss the definition of company valuation and explore the methods you can use to value your company.

What is a company valuation?

A company valuation is a method you can use to assess how much your company is worth. It's important to learn these methods of company valuation, as this can help in the event you attempt to sell your company or wish to encourage stakeholders to invest in your company. The calculation can also help you to determine if your costs and revenue are allowing you to make a profit. The valuation calculation can help you to decide where your revenue and profits are best spent within the company. The calculation can take into account the following elements:

  • inventory

  • equipment

  • assets

  • owned property

In some instances, you may also include projected revenue, the structure of the company and the share price, if relevant, in your calculations. Choosing which valuation method to use can depend on the circumstances of your company. You can consider the reason for the valuation, the industry you work in and the size of your company.

Related: 8 essential business manager skills

How to value a company

Here are methods of how to value a company you may consider:

1. Market value

The formula of market value allows you to determine the value of your business in comparison to other businesses in your industry that are on the verge of selling. To determine the market value of businesses similar to yours, you may find it helpful to gain information or data regarding the sale of these companies.

It may be slightly more challenging to discover the data about sole traders or smaller companies whose information is not public. There are no calculations involved in assessing the market value of other companies in your industry. It can be a helpful scoping exercise to determine how much your company may be worth, but may not be the most reliable method of a company valuation.

2. Asset-based value

The asset-based value method can help you to determine the equity of your business and identify the differences in value between your assets and liabilities. You can find these values on the balance sheet of your company. You can approach asset-based valuation in two ways:

  • Going concern: The going concern method is non-liquid and applies to companies that are remaining in operation. No assets are being sold.

  • Liquidation value: The liquidation value method applies to companies that are undergoing liquidation. The value of this calculation depends on the amount a company may be worth when they sell their operation, including the assets they own at liquid value.

3. Market capitalisation

Another method of business valuation is market capitalisation. You can implement this method by multiplying the share price of your company by the total shares you have remaining outstanding. This is one of the simplest methods of a company valuation.

4. Return on investment method

The return on investment method involves a mathematical calculation. This calculation includes taking the amount you are asking for from an investor, divided by the percentage of the business offered. For example, if you are asking an investor for £250,000 for 25% of your company, then the valuation of the business is £1 million. Using this method to approach investors and other stakeholders can be helpful in combination with other business factors. Buyers may also wish to know:

  • when the investment may be recovered

  • what the investment return amount can be

  • if the estimate of the return is realistic

5. Discounted cash flow or income approach

A discounted cash flow or income approach method can help you to value your company based on the cash flow you are expecting while adjusting this for the present value of the company. There are also two approaches you can take to this method:

Cash flow capitalisation

You can use the cash flow capitalisation method when your expected levels of growth are stable in the future. If you presume that your cash flow is going to continue growing at a steady rate, this method may be appropriate. It can also be appropriate if you expect the future growth of your company to remain limited.

Discounted cash flow

The discounted cash flow method of company valuation can help you to account for variations of growth, profits or payable accounts in the future of your company. This method may be appropriate if you expect your company to grow at a rapid rate. You can also use this method if you expect your accounts payable figures to fluctuate.

6. Capitalisation of earnings

Another option for evaluating your business is to use the capitalisation of earnings method. You can base this method on the expected profitability of your company in the future. You can determine this by accounting for your current cash flow, return on investment figures and expected value in the future. You may find this method is more appropriate for a business that is established in its operations.

7. Multiples of earnings or times revenue

The multiples of earnings or times revenue method work as you take into account the maximum worth of your business by assigning a multiplier that varies based on the business's current revenue. The multiplier can vary based on the industry your company operates in. This can give you an accurate representation of the true value of your company. Your profits can be a reliable indication of the financial performance of your company, rather than the simple revenue figure. You can adjust your earnings multiplier based on expected profits and expected cash flow that you can invest at current interest rates.

8. Book value

You can use the book value method to value your business by taking into consideration the value of your company's equity. You can calculate this as the assets minus the liabilities of your company, as seen on the balance sheet. This value, known as the 'book value', is the equity of shareholders.

Jobs that can use business valuation

Some roles can implement business valuation methods in their day-to-day duties. These roles can include that of a chief financial officer, financial controller and accountant. Read below to discover the national average salary and primary duties of these roles:

1. Chief financial officer

National average salary: £121,297 per year

Primary duties: Chief financial officers can work in financial organisations or businesses, controlling financial decisions and directing the financial plans of their organisation. They can have the ultimate say over decisions regarding finances and may complete tasks in relation to the financial goals of their organisation. The financial officer can also ensure the organisation adheres to regulations and is compliant with all legislation. The accuracy of financial reports also lies with the chief financial officer. Other primary duties of a financial officer include:

  • Ensuring a company's financial performance is accurately and transparently reported.

  • Developing plans to reduce costs and increase profits.

  • Planning and executing mergers or acquisitions.

  • Preparing financial reports and presenting them to other stakeholders.

  • Supervising team members in preparing financial statements or documents.

Related: 14 of the best-paid jobs in finance

2. Financial controller

National average salary: £55,430 per year

Primary duties: Financial controllers can evaluate and implement financial report processes for different businesses or organisations. They can oversee the financial or accounting practices within companies, recommending areas for improvement or new budgets that may benefit the company. Other primary duties of a financial controller include:

  • Prepare financial budgets, reports and statements.

  • Monitor the performance of company finances and processes and adjust these where necessary.

  • Evaluate company budgets and identify areas to reduce costs.

  • Assess invoices for payments to debtors.

  • Recruit accountants or financial analysts to join the team.

Related: What is strategic management and why is it important?

3. Accountant

National average salary: £34,981 per year

Primary duties: Accountants can implement new financial processes in a company to increase the efficiency of their operations. They can analyse data from financial reports, budgets, invoices and records. Other primary duties of an accountant include:

  • Preparing financial reports and recording transactions.

  • Reconciling statements from credit cards, banks, audits or other financial report documents.

  • Evaluating and reporting on differences in financial reports, statements, budgets and analysis.

  • Making recommendations for financial decisions once they have analysed all options.

  • Implementing critical thinking skills to improve existing processes.

  • Reconciling tax reports.

Salary figures reflect data listed on Indeed Salaries at time of writing. Salaries‌ ‌may‌ ‌‌vary‌‌ ‌depending‌ ‌on‌ ‌the‌ ‌hiring‌ ‌organisation‌ ‌and‌ ‌a‌ ‌candidate's‌ ‌experience,‌ ‌academic‌ background‌ ‌and‌ ‌location.‌


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