How much is my company worth? 

A company, unlike other types of goods, is valued for its ability to generate money over time for its owners.

We can distinguish between subjective and objective value. The subjective value is defined as the conditioned by emotional, family, or historical factors that would give rise to expectations that will or will not have to do with reality. The objective value, also called “fundamental value” of the company, is obtained from the rigorous analysis of the business reality: product portfolio, margin that each one of them can leave us, production costs, etc.

From there we would determine a benefit, eliminate taxes, and depending on the company’s collection and payment policy, we would quantify the money it generates. Additionally, the investment needs that the business may have should be considered.

For instance: how much is a soda vending machine worth?

For the manufacturer, it will be the result of adding an operating margin to the manufacturing cost based on supply and demand.

For the buyer of the soda machine, it will be the result of visualizing the future of its exploitation. That is, how many units of soft drinks could be sold, and, depending on the cost of exploitation, cost of handling and structural expenses, he will make a profit. Being the collection immediate, and the payment, which could be deferred in time, will allow a simple determination of the cash flow.

In general, it would be necessary to make the inference exercise of the future of the business, and from there, bring it to the present moment, using what is known as “discount rate”.

 But what is the discount rate and what is its relationship with the value of my company?

The discount rate has two fundamental aspects: the alternative profitability and the perceived risk.

We speak of alternative profitability when we refer to the expected profitability that any investor can obtain for his money at a certain level of risk.

Regarding perceived risk, we refer to business, financial and technological risks and those external factors that may affect the business operation.

What is the difference between price and business value?

Considering that the price is the money that a company can pay, and the value is what we have obtained as a result of the analysis carried out.

If the price paid is higher than the attributed value, the profit will remain with the seller. On the contrary, if the price paid is lower than the attributed value, the profit will remain on the seller’s side.

It can reasonably be expected to look for market references, that is, recent transactions in relation to companies like ours, so that the price that is paid does not have much dispersion compared to the one that is being paid in the market based on the offer and demand for similar businesses.