Valuation of Stock

Last updated: December 2020 | 5 min read

While there are many components to selling a business, one of the many crucial factors of these kinds of transfers is to properly value your stock. The good news is that this usually comes into discussion during negotiations, so at this point, both sellers and buyers are likely to want the sale to happen. This can make it easier for everyone involved, although it’s generally a wise idea to make sure that you don’t underestimate or overestimate the rate of your supplies if you want a simple and fair deal.

The value will often be agreed upon as you negotiate the cost of the enterprise as a whole, but it’s generally important to at least have a better understanding of how much it could be worth before getting to this stage in the process – either to avoid arguments and stress with potential buyers, or to avoid selling for a lower price than the company(and its inventory) is worth.

Most people in this position will be glad to hear that they can get a solid estimate themselves with a little work – although hiring the help of a business transfer agent may not be a bad idea.

How can you make an assessment of your supplies?

A common method of calculating this is by looking at the company’s current assets and any goods that are arriving. If you can find out the sum of your inventory and also consider how sellable it is, there’s a decent chance that you will be closer to knowing how muchit’s worth.

While this is a suitable option for most, there are other appraisal methods, too. While the type of business and assets owned can make a difference to the overall price, certain techniques can suit different needs. A few of these include:

  • Comparable companies analysis (CCA)
  • Discounted cash flow model (DCF)
  • Dividend discount model (DDM)

The difference between absolute and relative stock valuation

The methods of assessing the cost of your goods can often be put into one of two categories – absolute and relative. Both are different, and therefore can be beneficial to a range of companies depending on the situation.

Absolute methods (such as discounted cash flow model and dividend discount model) tend to rely on analyzing the corporations’ financial information, typically found in financial statements. This can include several factors; such as cash flow, dividends, and growth rates.

Relative stock valuation techniques instead determine a cost by looking at the most important financial ratios of organizations in the same (or a similar) industry, and comparing them to the investments made by the enterprise that’s going to be sold. 

What should you do if the buyer isn’t willing to purchase the company’s inventory?

While selling, you’re likely to find many people who are interested in what your business has to offer – but in some instances, you’ll come across individuals who aren’t looking to purchase the stock you own. In these cases, there is a fair chance that they’re planning on making big changes that don’t require the assets the enterprise currently has.

When this happens, most owners will sell as much of the supplies as they can before the sale goes through (often using a clearance sale to get as many buyers as possible). Any remainders are likely to be sold to an overstocked business firm, or perhaps independently; this can depend greatly on the owner’s own preferences and decisions.

This is one reason why evaluating your corporation and itsinventory separately can be arespectable idea. Even if a buyer wants to take both, it can be wise to at least have some understanding of how much each is worth individually in the event that you’ll need to sell your enterprise without its assets.

Getting the help of a professional business transfer agent

The whole process of selling your firm can be complex, and a lot of it will rely on the seller making the right choices. Those who are unsure are likely to find that hiring an agent can make a huge difference to the process in several ways.

With an expert on your side, there’s a solid chance that you’ll find the overall process to be simpler; from figuring out the ideal base price, to closing. This is because a skilled transfer agent will likely have taken care of this type of work before, dealing with valuing companies and their assets, making the company look attractive to entrepreneurs looking to buy, negotiating prices on your behalf, and more.

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