In this report, we explore what data is needed to value a company, how to spot undervalued or overvalued businesses, and which valuation methods to use.
Both a science and an art, valuing a business is notoriously hard. But knowing a company’s value is crucial.
Business valuations help venture capital (VC) firms track their portfolio performance, mergers and acquisitions (M&A) teams analyze acquisition targets, and entrepreneurs raise money.
In this report, we explore how to value a company, whether it’s public or private, pre-revenue or post-revenue, overvalued or undervalued.
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Table of contents
What is a valuation?
- Data used to determine valuations
- Who uses business valuations?
How to value a company
- Methods for post-revenue companies
- Methods for pre-revenue companies
Selecting a business valuation method
Determining if a company is over or undervalued
- Examples of overvalued companies
- Examples of undervalued companies
Where to find valuation data
- Public filings (S1, IPO, government filings)
- Actuals and estimates (through CBI Dow Jones VentureSource data)
- Whisper valuations
Trusting the market
What is a company valuation?
Business valuation is the process of calculating the financial value of a company or an asset. The valuation involves collecting and analyzing a range of metrics, such as revenue, profits, and losses, as well as the risks and opportunities a business faces. The goal is to arrive at a company’s estimated intrinsic value and enable entrepreneurs and investors to make informed purchase, sale, or investment decisions.
However, the valuation process is far from being purely scientific. “There is still a huge amount of art involved,” says James Faulkner, managing director at London-based VC firm Vala Capital, “because the financial model [for valuing the company] will depend entirely on subjective inputs: estimates for everything from the rate of sales growth to the company’s salary costs for the next five years.” These assumptions make any valuation an educated guess at best.
Still, the valuation process is important. It helps analysts calculate the intrinsic value of an asset, which sometimes can be detached from its current trading market price. Intrinsic value strives to be objective and less affected by the short-term ups and downs of the economy. The difference between intrinsic and market values is often where profits are made and losses incurred.
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