19769403
Description
Mind Map by Hector Alzate Ramirez, updated more than 1 year ago
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Created by Hector Alzate Ramirez
about 5 years ago
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Methods of "Income" valuation
- A company valuation determines how much a business is worth. There are three basic
valuation methods and criteria: approaches to assets, income and marketing
- While no method can accurately assess the true value of a business due to market changes, different
approaches tell a different story of a company's value from multiple perspectives
- Income approach
- It is common in the commercial
area in the areas of valuation of
goods and in business valuation
- Measures the buyer's risk against the
company's potential profits. Two
methods are used to reach a value:
- capitalization
- Capitalization uses a
formula based on previous
results
- Companies with a track
record of good
performance are better
measured by the
capitalization method
- Companies with a track
record of good
performance are better
measured by the
capitalization method
- Discount
- These methods use a formula to calculate the
value of the company based on future earnings
- The discount takes into
account the risk factors
assumed by the buyer
- Untested new
businesses, can be
better valued with
the discount
method
- Untested new
businesses, can be
better valued with
the discount
method
- These methods use a formula to calculate the
value of the company based on future earnings
- capitalization
- Measures the buyer's risk against the
company's potential profits. Two
methods are used to reach a value:
- It is common in the commercial
area in the areas of valuation of
goods and in business valuation
- Real options
- It is considered a very useful tool
for business strategy and also a
very reliable valuation method
- The decision tree technique was
implemented as a key tool in the real-world
option valuation method
- In a purchase option (financial or Real), the value of the
option behaves similarly to that of the underlying asset.
If the price of the underlying asset increases, the price
of the option increases as well and vice versa. If the
option is for sale, the opposite is true
- Types of real options
- Expansion option
- Contraction option
- Expansion or
shrink/change option
- Initiation or deferral
option
- Abandonment or term option
- Sequence of options
- Outgoing product mixing option
(Output mix)
- Outgoing product mixing option
(Output mix)
- Option to mix incoming
products ( Input Mix)
- Expansion option
- Types of real options
- In a purchase option (financial or Real), the value of the
option behaves similarly to that of the underlying asset.
If the price of the underlying asset increases, the price
of the option increases as well and vice versa. If the
option is for sale, the opposite is true
- The decision tree technique was
implemented as a key tool in the real-world
option valuation method
- It is considered a very useful tool
for business strategy and also a
very reliable valuation method
- Cost Approach
- It is based on the principle of
substitution, which states that no duly
aware buyer of the general
characteristics of a good would be willing
to pay for it more than it would be
difficult to replace it with another that
provides such usefulness
- Applies to substitutable goods such as
valuation of facilities or improvements.
The new replenishment value,
replacement value, and net replenishment
value are applied within this concept.
- The Cost Approach is the result
of the sum of the Commercial
Value of the Land plus the
Replenishment Value of the
Improvements
- The Cost Approach is the result
of the sum of the Commercial
Value of the Land plus the
Replenishment Value of the
Improvements
- Applies to substitutable goods such as
valuation of facilities or improvements.
The new replenishment value,
replacement value, and net replenishment
value are applied within this concept.
- It is based on the principle of
substitution, which states that no duly
aware buyer of the general
characteristics of a good would be willing
to pay for it more than it would be
difficult to replace it with another that
provides such usefulness
- Market approach
- They are commonly known as multiple
valuation and fall within the group of
comparative methods
- This method calculates the value of a company
by comparing it with those similar to it by using
defined key figures based on the information of
those comparable companies
- In these key figures the numerator is the value of the
comparable companies and the denominator a
certain parameter ( Profits, Sales, Cash Flow)
- The ratio is calculated by comparing the value
of the comparable company and is easier when
comparables are listed on the stock exchange
- PER (Price Earning Ratio)
- Cash Flow Contable Ratio
- Cash Flow Lree Ratio
- Sales ratio
- Costumers Ratio
- Ratio units solds
- EBIT Ratio (Profit before interest, fees )
- PER (Price Earning Ratio)
- The ratio is calculated by comparing the value
of the comparable company and is easier when
comparables are listed on the stock exchange
- In these key figures the numerator is the value of the
comparable companies and the denominator a
certain parameter ( Profits, Sales, Cash Flow)
- This method calculates the value of a company
by comparing it with those similar to it by using
defined key figures based on the information of
those comparable companies
- They are commonly known as multiple
valuation and fall within the group of
comparative methods
- Income approach
- While no method can accurately assess the true value of a business due to market changes, different
approaches tell a different story of a company's value from multiple perspectives
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