How to Calculate Company Valuation?

It’s a pretty good meaty topic that most people want to get guidance on. How you deal with the shares taking process and the main big question mark here is how you value a company. It could be just one reason, but there could be many other reasons like buying a company as well.

This question is what predators want to know before targeting their prey, like customers and sellers of big shares.

Investors are more interested in this topic to know whether they are getting the right thing or not in return for their money.

What and how do I think about money…..? To calculate an openly traded company’s market value by simply multiplying its stock price by giving outstanding shares. That’s easy enough.

What is the valuation of a company?

Valuation of a company is the analytical process of determining the current and projected worth of a company. When analysts calculate the value of a company, they analyze the business’s management, capital structure, future earnings, the market value of its assets, etc.

Now let us see how we do company valuation.

How to Calculate Company Valuation?

A company’s valuation can be calculated using Book value, Stock market value, Multipliers, or DCF analysis. When the book value is used, the data from the Balance Sheet is taken. This is the simplest and fastest method, but also the least accurate.

DCF analysis is the best method for evaluating a company. At the same time, it is the most complex. DCF analysis uses discounting the company’s future cash inflows and reducing them to present value. What is a special problem is how to determine the future cash inflow of the company. McKinsey developed the most well-known methodology for valuing a company. Their methodology is well described in the book Valuation: Measuring and Managing the Value of Companies, ISBN 0470424702,

But the whole process for private companies isn’t simple though straightforward or rather transparent. Private companies don’t report their financials, and since there’s no stock listed on an exchange, it’s often difficult to determine the company’s value.

If you are trying to figure out the value of a company or business, whether you plan to take hold of other businesses or sell your own start-up, there is a formula that helps to have a maximum and an accurate estimate of that figure. Even if you hire someone to evaluate the company’s assets and arrive at the business’s valuation, it’s important to understand the methods they use.

Stock market company value formula

Simple Enterprise Value of company formula is:

Company Value = Market capitalization + Total Debt – Liquid assets of the company

The whole Enterprise value of the company is:

EV = Common Shares + Preferred Shares + Market Value of Debt + Minority Interest – Cash and Equivalents

See how to calculate the value of the company:


Taking out the company’s estimated figure or organization of the public sector is much easier than the private sector. You can use the other equivalent company’s analysis method, which involves looking for similar public companies. Using the facts and figures of a private sector company’s closest public competitors, you can determine its value using the EBIDTA or enterprise value multiple.

Private vs. Public Ownership


The most obvious difference between privately-held and publicly-traded companies is that public firms have sold at least a portion of the firm’s ownership during an initial public offering (IPO). An IPO gives outside shareholders and the opportunity to purchase a stake in the company or equity in the form of stock. Once the company goes through its IPO, shares are sold on the secondary market to investors’ general pool.


The ownership of the private companies remain held and open to mostly the selected and few of the shareholders that makes it really difficult for the others to get the estimate of their assets and finances since everything remains closed to the few people and those people are only the shareholders and the stakeholders, unlike the public companies who share rate are always open to the local market, and everyone can see them. That makes it relatively easier for other people to buy them since they see things are transparent.


Private vs. Public Reporting


Public companies always adhere to the accounting and financing to the market and disclose their information to the public sector. Hence, the people know when and how they have to buy that specific public company’s shares. Since this has been the case, public companies are bound to report their finances and accounting.

Private companies work in a free flow because they don’t have to show up their account by the SEC policy, and any strict policies do not bind them. They work as they want without any hard restrictions, unlike public companies.

Below you can see how to calculate the valuation of a small company:

Public Market


The biggest plus of becoming a public sector company is the aptitude to knock the public financial markets for money by issuing public bonds or business bonds. When you have direct access to that such capital, this will be a definite advantage for you to raise funds to take on new projects or expand the business.


Why Valuation Matters


Calculating the worth of a business is essential if you’re buying or selling, but that’s not the only reason.


If you’re looking for financing, lenders, investment bankers, and venture capitalists will want to know what the company’s worth.

If you’re in a partnership and one partner wants out, you need to calculate the value of that partner’s share of the company.

A business valuation may be required in a divorce so you can divide up marital assets equitably.


The valuation of a company can be contentious. For example, your partner may want a higher value for his stake in the partnership scenario than you think his share is worth. That’s why objective valuation methods are useful.



How the Discounted Cash Flow Valuation
How to create a valuation of a company using the DFC method in the video below:


The Discounted Cash Flow, also known as (DCF), is a much more operational method for establishing its value.

To know the company’s valuation, whether, if any, a company by DCF requires more number-chomping than asset evaluation. If you are considering how much capital or profit a business will generate in the future, it will provide a much better view and the idea of the company’s real worth, which would be present.

DFC evaluation formula is based on Growth, COGS (cost price, but without depreciation), OPEX (operating costs), DSO (receivables collection period), PART(inventory retention period), DPO (supplier payment period), CAPEX (investment in fixed assets).

How can you calculate the DCF of a company?


For the immense calculation of your company’s future revenue or any other’s company, you can base that idea on forecasting the growth. You can base this on a simple growth forecast or consider factors such as price, volume, competition, and your customer base. The second option takes more work. Project your expenses and your capital assets. Combined with revenue, this lets you determine your future cash flow.


What are the advantages of DCF?


This valuation method has many great advantages, such as its function as a tool for its asset valuation. It doesn’t require comps. You can rely on the DCF method results by assuming the future cost of the company’s asset.

You can use DCF with multiple scenarios as to how the future plays out.

Though this method uses a lot of math but using and applying some of the excel work, you can go through it.


What are the disadvantages of DCF?


Although using the DCF method has some of its errors and drawbacks, it must be considered in one note.

You use most of your assumptions about future growth and cash flow. It’s appealing to make them overly optimistic.

Chang in your expectations can create drastically different future cash flows. Calculating the DCF is a complex method and allows multiple errors to be made when calculating.

With the use of Excel sheets, it’s easy to make calculations based on a DCF method calculation. Making an accurate DCF calculation, however, takes skill and experience on top of that.




Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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