Business Valuation
For the valuation of companies we use all proven business valuation methods comprising from the simple comparable companies and transactions analyses to the analytic discounted cash flow and leveraged buy-out methods. However, since even the most analytical methods are not sufficient for determining the market price achievable in reality, we take also into consideration the other value-relevant parameters such as e.g. industry, company size, growth rate, market share, synergy effects, management situation, actual financing and economic conditions.
The different methods:
The Multiples Analysis is a simple approach to estimate the company value. Factors commonly used for certain industries are multiplied with earnings key figures. The result of the multiplication represents the company value from which net interest bearing debt is deducted in order to obtain the value of the shareholder’s capital. The most commonly used earnings key figures are earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA).
See www.finance-research.de/multiples/
The Peer Group Analysis is a type of comparable company analysis. On the basis of valuation multiples of companies within the same industrial sector that are quoted or were sold recently and have published their figures, earnings key figures of the company in question are determined in order to obtain its value.
Contrary to the aforementioned valuation methods representing a past-to-present oriented approach, the Discounted Cash Flow Method (DCF) looks to determine the company value based on the best possible estimate of the future free cash flows. Hereto, the development of the company's operating and financial key figures (e.g. sales, expenses, earnings, etc.) as well as expected investment needs and changes in the balance sheet structure (e.g. changes in working capital) will be considered.
Free Cash Flows determined by such a detailed analytical approach will be discounted with a risk relevant weighted average cost of capital (WACC) in order to receive the company value. Depending on whether the estimate of Free Cash Flows incorporates the interest charges, DCF method delivers either the enterprise value (equity value plus the value of net interest bearing debt) or the value of the shareholder’s capital (the value of equity).
The Leveraged Buyout Method as a type of DCF-Method simulates which transaction value a company can bear while undergoing different financing terms and considering the effects of so called tax shield. Simplified, the tax shield reflects the positive contribution of debt to the company value through the reduction of income taxes resulting from an allowable deduction of taxable income.
