For the owners of a company, a company valuation is one of the essential bases for decision-making with regard to the further development of the company. For the seller of a company, who makes a divestment decision with the sale of shares, the purchase price as an absolute date is the essential decision-making factor.
For him, a sale of his company is always advantageous if the price is above the subjective value of the object of purchase to be determined for him. This applies in any case if the purchase price is paid in money, i.e. practically risk-free. Also with regard to financing decisions, e.g. by financial investors and banks (Basel II), the company valuation represents an essential basis for decision-making.
Since every company value is an expression of uncertain expectations condensed according to one method or another, no company value can satisfy the postulate of absolute correctness. It is always a value in a range on a measuring stick of currently common methods. Therefore, we recommend that the enterprise value be determined by means of different methods. This enables a plausibility comparison between different values and thus contributes considerably to the decision-making process.
KP Tech Corporate Finance prepares a practice-oriented and professional business valuation based on the discounted cash flow method (DCF method) as well as on comparative methods ("practice methods").
Derivation from realised prices of comparable companies (Comparable Company Approach)
In this method, concrete market prices are set in relation to the financial figures of the company to be valued.
Comparable Company Analysis (CCA)
The method is based on the use of realised purchase prices of similar companies. KP Tech Corporate Finance calculates the enterprise value of the company to be valued from published purchase prices of acquisitions of comparable companies.
Similar Public Company-Methode (SPC)
The key figures of the company to be valued are compared with the key figures of corresponding listed companies. The advantage of this procedure lies in the availability of highly up-to-date comparative prices.
These two procedures are applied on the basis of the derivation from industry-typical multiples
Discounted cash flow method (DCF method)
The DCF method recognised by the Institute of German Certified Public Accountants (IDW) is the most widely used method for valuing companies in practice. KP Tech Corporate Finance calculates the company value using the so-called entity method. The first step is to define the cash flows relevant to the valuation and to plan them for a longer period of time. For this purpose, we prepare a projected cash flow statement for the company to be valued. In order to counter forecast uncertainty, the planning period is divided into two phases.
For the first, closer phase (current year, following year), the cash flows can be planned with sufficient certainty, since information (orders on hand, etc.) is still available for this period, which makes the planning assumptions plausible. For the second phase (from the third year in the future), the result of the last forecast year of the first phase is taken as the expected sustainable cash flow and extrapolated using market forecasts and capitalised using the formula for perpetuity.
The calculated cash flows of the individual years are then discounted with the average cost of capital ("WACC" = Weighted Average Cost of Capital) also calculated by us. The result is the discounted cash flows to the owners of the company to be valued and thus the so-called value of equity.
Software business valuation: new software version for business valuations –> Software Company Valuation (only in German language)