How to Read a Professional Business Valuation Report
Don't know how to Read a Professional Business Valuation Report? Read our explanation
A valuation report is written when a business is valued by a business advisor or using business valuation software, such as equitest. The business valuation report presents the value of the company as well important information of the company and the valuation methods the appraisals had adopted.
This blog post will explain how to read a business valuation report.
Valuation Report Template
Business valuation reports are typically produced based on standards established by the American Institute of Certified Public Accountants (AICPA), Uniform Standards of Professional Appraisal Practice (USPAP), or other governing valuation institutions. The business valuation report, however, may include different structures, with the following four main parts or the following valuation report template:
Company Background
Financial Review
Valuation Methodology
Valuation Summary
Business Valuation Report - Company Background Section
The part of the company background may discuss the issues of:
The Nature and History of the Company
The Industry
The Founders, Owners, and Company's Team
The Market and Products
The Competitors, Customers, and Suppliers
Business Valuation Report - Financial Review
The financial review part presents the Balance Sheets and the Profit and Loss statement and analyzes the Financial Ratios - Liquidity Ratios, Coverage and Leverage Ratios, Profitability Ratios, and Operating Ratios.
Business Valuation Report - Valuation Methodology
The section on valuation methodology presents the valuation methods the appraisal had used. The report may use the following valuation methods:
Discounted Cash Flow (DCF): is a valuation method used to estimate the value of an investment based on its future cash flows.
Relative Valuation Approach: The comparative valuation approach is a valuation theory based on the idea that similar assets sell at similar prices. It includes several methods, such as Earnings Multiples, Book Value Multiples, or Revenue Multiples.
Asset-Based Valuation: The Asset-Based Valuation method focuses on a company's net asset value. The net asset value is identified by subtracting total liabilities from total assets.
Berkus Method: The Berkus Method is used to value an Early Stage Investment.
The most critical parameter is the growth rate. Look for the growth rate - and examine it.
Business Valuation Report - Valuation Summary
The section of the valuation summary presents the company's value according to the company appraisal.
How to Read a Business Valuation Report
The reading of a report to assess the value of companies depends on the report's purpose - for example, do we want to invest in the company or acquire it?
No matter the reason we read the report, you should first read the bottom line - what is the company's value? If we want to buy - we want the lowest value, and if we're going to sell - we want the highest value.
It should be remembered that since the report will include several evaluation methods - there will not be one value but rather a range of values.
In the second stage, for a person who does not know the company at all, we recommend reviewing the first part - the company's background - to learn about the company, the industry, competitors, products, and the like.
In the third step, we recommend reviewing the chapter on the valuation methodology. The most critical parameter is the growth rate. Look for the growth rate - and examine it. In principle - the higher the growth rate - the better the company. On the other hand - if growth rates are expected to be elevated throughout the forecast period, they may indicate a problem in the valuation. We would like to see high growth rates that are moderating.
Conclusion
In conclusion, in this article, we discussed how to read a business valuation report. We hope the explanation was helpful. We would love to hear your notes regarding our blog post. If you are looking for a business valuation report, you can start creating it for free using our intuitive ai based business valuation software.
