Factors Influencing the Value of a Company

Recast Earnings

With rare exception, a company's recast pre-tax earnings influence valuation more than any other factor. Viewed in the simplest manner, buyers are looking to purchase a stream of income that will provide a desired return on investment and justify the purchase price. In most cases commonly accepted valuation methods primarily rely on multiples of earnings. The stronger the earnings, for an extended period of years, the greater the value.

Hard Assets

Tangible assets have a positive influence on value. Generally the greater The asset value included as part of a transaction, the greater the overall company value. However, the value that must be placed on the assets are what is their current value in today's condition. Not what they were purchased for and not the depreciated value.

Risk Factors

To clearly determine a company's value, buyers must weigh the future opportunities against the perceived business and economic risk. Elements that decrease risk increase value.

Buyer Identity

A company can have a significantly greater value to one buyer than another. Much of the perceived value derives from the company's strategic value can be achieved through cost synergies. The buyer is able to reduce costs due to duplication or greater buying power etc.

Presentation & Packaging

Buyers evaluate a business opportunity and expect the financial records, organizational chart, equipment list, vehicle list, an overview about the company plus anything else that makes the company operate effectively in today's market place.