Valuing a Business based on Cash Flow and Risk
The example below shows how to value a business by discounting its cash flow. First, you use the recast business financial statements to estimate the cash flows 5 years out. Next, the disount rate is built up, representing the company risk profile. Finally, you estimate what the business will be worth at the end of the 5-year forecast – an expected gain if the business is sold then.
Varying your assumptions changes your inputs and affects your business valuation results. You can easily do what-if scenarios. Each scenario should reflect the possible business outcomes – and how they translate into business value.
Use the Discounted Cash Flow method as a strategic planning tool. Make the right business decisions and increase your business worth!
Tools to value a business three ways