How do you calculate the company valuation

Company valuationMethods for calculating company value

The total value method and in particular the DCF method are much more important in valuation practice. For the majority of all company acquisitions and sales, the DCF valuation is likely to be the most suitable method for calculating a detailed approximation for a price or value range.

DCF stands for discounted cash flow, i.e. the future cash flows (free cash flows) that are discounted (discounted) on the basis of specifically determined, weighted capital costs. The free cash flow corresponds to the company's free cash flows to which all investors are entitled. In order to calculate the company value to which the shareholder is entitled, the financial liabilities are deducted.

A business plan is developed for modeling the DCF, which means that sales and costs are planned for a period of five to ten years and the annual results (EBIT) are determined. For the cash flows, corporate taxes, investments in property, plant and equipment (CAPEX), increases in working capital are deducted from EBIT and depreciation and reductions in current assets are added. A value is also determined for the period after planning (e.g. ten years), because the DCF method is based on the continuation of the company. The terminal value often makes up a high proportion of the total value determined: more than 50 percent is not uncommon.