There are many factors and calculations that go in to a company's valuation estimate. In general, there are 5 key components that the interVal platform will consider.
Assets
The base of assets (things that the business owns, such as cash or equipment) contributes to the underlying value of the business. In cases where the business owns a significant amount of assets, the primary value is called asset-based value.
Liabilities
The liabilities (things that the business owes, such as accounts payable or loans) are a significant point in determining the value of the business. If the business has liabilities that are near or greater than the amount of the assets, the baseline value of the business is reduced, and there may be considered to be more risk associated with the ongoing operations of the business.
Cashflow
The cashflow that a business generates (most commonly, the profits generated plus or minus any adjustments for non-cash items e.g. amortization) is a primary driver in determining the overall value of the business, and is the main determining factor in calculating the Goodwill that contributes to the value. The greater the cash flow a business can generate on a recurring basis, the more value they will have over and above their asset value.
Expenses
The expenses that a business incurs directly correlates to its profitability (and therefore its cashflows). The business’ ability to control its expenses has a direct impact on its valuation.
Any expenses that are present on the financial statements, but that the business owner would consider to be discretionary (or controllable in any way) can often have a very significant impact on the valuation. Providing details on these expenses is crucial to the normalization of the valuation. See the Accuracy Check questionnaire for more information..
Consistency in Results
While years may be weighted differently, it is important to understand that the entirety of the financial history (typically 3-5 years, where available) is considered. A business that demonstrates positive trends and consistent results over the entire period will typically be valued more favourably than a business with inconsistent and unpredictable performance.