At CVG, we pride ourselves on delivering timely, credible, defensible and easy to understand valuations for our clients, regardless of their unique business complexities.
CVG determines the value of your business using the results of up to three separate sets of analyses, that are recognized by the valuations profession. Briefly, these can be summarized as follows:
- The Income Approach using Discounted Cash Flow Analysis
- The Market Approach based on Comparable Transaction Analysis
- The Asset Approach
Discounted Cash Flow Analysis
Cash is the basis of any business investment and a vital determinant of value. A business is only worth the free cash that it generates relative to other available investments. Often, business acquirers use a multiple of current cash flow as an initial estimate of value when first assessing a company. We conduct our cash flow assessment by forecasting out the future cash flows from the business, given reasonable assumptions and the historical cash flows as guides. We determine an appropriate discount rate given the risk profile of the company, to determine the present value of those cash flows.
Comparable Transaction Analysis
We use our access to third party data covering transactions in the same and similar industries as the subject company to determine what buyers have been paying for comparable companies. This analysis provides an important accompaniment to the cash flow assessment: while the cash flow assessment relies on certain assumptions of growth rate and risk, this analysis is anchored on historical data, providing support to the cash flow value.
The Asset Approach
For this analysis, we determine what it would cost to replicate the business. This includes determining value of both tangible assets (real estate, equipment, etc) and intangible assets (the marketing that would be needed to create the reputation and customer list the company built, the cost of hiring or training for specific expertise, the value of patents, trademarks, goodwill, etc).
Adjustments to Value
Often, the value determined using the methods described above must be adjusted to reflect specific aspects of an engagement. For example, business valuation can change depending on whether:
- The company is being sold in an asset versus a stock transaction
- The transaction involves a fractional interest in the business
- There is real estate included
- Debt is being assumed
- The business experiences high volatility or has other unique risks
- A single person (often the seller) is vital to the business’s prospects going forward
We apply these adjustments as appropriate to generate a real-world assessment, providing a discount or a premium to be added to the company’s raw value.