If there is something difficult to quantify in the economic world, it is the value of things.
The maxim of each person is a world acquires its greatest expression when what we are talking about is valuing our personal objects.
Maybe a car is more valuable to you than to me, or that necklace that I inherited from my grandmother that you would never pay if I sold it to you. What’s more, even water can be more expensive than diamonds in certain circumstances.
In the business world, despite the fact that the value of a company is much more objective, there is no single formula to calculate it and, therefore, there is no single value. Of course, there are more or less accepted methods that serve to approximate their real value. These three that we will analyze below are precisely the ones that are most important when evaluating a company.
Obviously, all of them are complex methods that require a certain accounting and financial base for their correct understanding. In this case, in reality, it is enough to know the meaning of assets (what the company has) and liabilities (what the company owes). But, let’s make it simpler: how much would your assets be worth if you were a company?
The book value method
It consists of calculating the own resources that a company has and that appear in the balance sheet. Said in a simpler way, it usually equals the value of the contributions made by the partners plus the benefits that the company has obtained in successive years. In turn, and given the accounting definition itself, it can be calculated as the difference in value between the asset and the liability, that is, the value of net worth.
For example, suppose I just bought a house worth 300,000 euros, for which I have asked for a loan of 250,000 euros and a laptop worth 1,500 euros, in addition to have another 5,000 euros at the bank. In this case, the value of my asset (what I have) is 306,500 euros (300,000 + 1,500 + 5,000), while the value of what I owe is 250,000 euros. In this case, the book value of my assets would amount to 56,500 euros (306,500 – 250,000).
The liquidation value
It is the value of a company in the event of the liquidation of the asset it has at a certain point in time. Normally, there is a market in which the company can sell its goods at a market price, and it is just that market value that serves to estimate the business valuation.
For example, suppose that in the previous example we can sell the house for 280,000 euros and the laptop for 800. Adding this money to the cash that we already have, we can amortize the loan in advance and we would still have 35,800 euros left, so That would be the value of the company at that precise moment.
Market value of the shares
The value of the shares of a company is calculated as the result of the value of the contributions of the partners, also called share capital, between the number of shares in which the company has been divided .
This calculation gives us what is known as the nominal value of a share, which rarely coincides with its market value, which fluctuates according to supply and demand in secondary markets such as the Stock Market. If we multiply this market value by the number of shares, we will obtain as a result the market value of the shares, more commonly known as market capitalization.
For example, if Juan and Pedro have contributed 6,000 euros to their company and have divided the company into 1,000 shares, each of them will have a nominal value of 6 euros. If two months later, the shares are worth ten euros on the stock market, the company’s market capitalization will have been 10,000 euros.
But, which method is better to value our company?
In reality, there is no better or worse method to carry out the assessment, since each of them is different from the previous one and the results, as we see, very different from each other. Each of them depends on the information that we have at all times but, above all, on our needs.