You can determine the enterprise value of a company in several ways. Examples include the business approach, where we look at the financial value the company can generate. Another way is the market approach, comparing “multiples” of recent transactions of comparable companies.

Enterprise Value

Often enterprise value is seen as the value of your company. Therefore, to arrive at the so-called shareholder value, a number of corrections must still be made. For example, excess liquidity accrues to the seller but he/she must also pay off debts if a company is delivered debt-free. The enterprise value indicates what a company is worth by looking at what it can generate in revenues and comparing this with a return requirement appropriate to the risk profile of the company. In addition to this value from income, existing debts and liquidities must also be taken into account.

Shareholder value

For example, if the company achieves an annual EBITDA of 2 million euros and a multiple of 6.3 is used, the value of the company based on the market approach appears to be 12.6 million euros. But if there is also debt of 10 million euros, only 2.6 million euros remain for the shareholders. Therefore, to go from enterprise value to shareholder value, a correction must be applied.

This correction consists (simplified) of the following components:

Enterprise Value

+/+ Excess cash and cash equivalents

-/- Interest-bearing liabilities

+/- Correction of working capital (accounts receivable, inventory and accounts payable)

————————————————————————————————-

= Shareholder value

Contact our certified valuators to learn more about a valuation of your business.