Although there are several effective methods of business valuation in Dubai, none of them is an exact science. It all depends on the type of business, industry, growth rate, profitability, and stability of the company. Business owners generally want to know their “goodwill value,” or the “excess value.” Here are some of the more common methods. Read on to learn how to use each one to determine the value of your business.
Excess earnings method:
The excess earnings method is a popular approach to business valuation. This approach discounts a company’s earnings based on two capitalization rates – the rate of return on tangible assets and the rate of return on goodwill. These methods are often referred to as hybrids, as they take into account both expected cash flows and the company’s assets. They are not suited for every business, but they can be instrumental in certain cases.
Discounted cash flow method:
To value a business using the discounted cash flow method, you must be able to predict future cash flows. This can be done by examining the company’s balance sheet, which will indicate how much money came in and went out of the company during the previous year. Assume that cash flows from the business will be $25 million in the next year. If the company does not make any more money during the year, it will not be worth valuing the business with this method.
Going concern method:
The going concern method of business valuation is a common practice that determines the value of a business by assuming that it will continue operating and be profitable. This method considers all of a business’s assets, including tangible and intangible assets. Intangible assets are valuable because they require time and money to create, and a company valued as a going concern would probably be worth more than the value of its liquidated tangible assets.
Multiple discretionary earnings method:
One business valuation method is known as the Multiple of Discretionary Earnings (MDE) method. This method is based on the profits of a business, before expenses, owner compensation, non-recurring costs, and related income. The buyer will typically weigh the most recent year’s SDE numbers in their evaluation.