Tag - project management

January 2021

The Importance of Business Valuation

The Importance of Business Valuation

The Importance of Business Valuation

 

There are many reasons why Business Valuations are important. It is an essential input to many of the decisions that boards, management, regulators and investors make every day in modern business Such As:

  • Litigation
  • Exit strategy planning
  • Merging
  • Buying a business
  • Selling a business
  • Strategic planning
  • Funding
  • Selling a share in a business

 

Why is called business valuation ?

Determining the true value of a business, a process called “business valuation,” is not just important when the owner is looking to sell the company.

To obtain a business valuation, business owners may wish to contract with a professional appraiser to provide an opinion that will be viewed as independent and objective with the IRS. The resulting business valuation then may be used in a variety of planning applications.

Not all the methods adopted internationally can be fit locally; this fact is rarely considered, especially that the problem of estimating the fair value of assets and companies has become one of the most debatable issues in most of Arab countries.

 

How does the business valuation process work?

Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. An accurate valuation of a closely held business is an essential tool for a business owner to assess both opportunities and opportunity costs as they plan for future growth and eventual transition. It provides either a point-in-time assessment of relative value for an owner, or perhaps the price a buyer would be willing to acquire the business.

 

Read Also :

What is feasibility study and how it affects in project management?

https://truth-uae.com/en/investment-opportunities-in-egypt/

 

Common Business Valuation Methods:

 

Asset Valuation

Company’s assets include tangible and intangible items. Use the book or market value of those assets to determine your business’s worth. Count all the cash, equipment, inventory, real estate, stocks, options, patents, trademarks, and customer relationships as you calculate the asset valuation for your business.

 

DCF Valuation:

In this valuation method we estimate the value of an investment based on its future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The Discounted Cash Flows Method requires the following analysis – Revenue, Expense, Investment, Capital structure and Residual value analysis. It values the company considering:

  • Free cash flow to the firm (FCFF).
  • Free cash flow to equity (FCFE).

 

Book Value:

Book value is total assets minus total liabilities and is commonly known as net worth. The book valuation technique is usually used as a method of cross-testing the more common technique of applying multiples to EBITDA, cash flow, or net earnings.

 

Replacement cost

The cost approach is based on the logic of the principle of substitution. The concept is that prudent investors will not pay more for a property than they would for a substitute property of equivalent utility. As with the market approach, there are two potential starting points for a cost approach to valuation: reproduction cost and replacement cost.

Reproduction cost is the estimated cost, at current prices, to create an exact replica of the subject asset, using the same materials, construction techniques and standards, design, and quality of workmanship, and incorporating all the property’s deficiencies, over-adequacies, and obsolescence’s into this exact duplicate.

Replacement cost is the cost to replace an existing property with a new one of equivalent utility, as of a specified date.

Finally.. the concept of estimation and determination of fair value is extremely relative and complicated. Accordingly, it is very difficult to arrive at a conclusion whereby an accusation of detriment is hurled or a reform is praised. In witness whereof, in order to seek a fair judgment and objective thinking, we have first to ask about the basis and assumptions of evaluation if we really want to safeguard our sold assets.

 

The Importance of Business Valuation , Truth Economic & Management Consultancy

 

Resources :

https://masource.org/the-importance-of-business-valuation/

November 2020

What is feasibility study and how it affects in project management?

What is feasibility study and how it affects in project management?

What is feasibility study and how it affects in project management?

Feasibility study is a formal project document that shows results of the analysis, research and evaluation of a proposed project and determines if this project is technically feasible, cost-effective and profitable.

A feasibility study determines whether the project is likely to succeed in the first place. It is typically conducted before any steps are taken to move forward with a project, including planning. It is one of the—if not the—most important factors in determining whether the project can move forward.

The growth and recognition of project management have changed significantly over the past few years, and these changes are expected to continue and expand. And with the rise of project management comes the need for a feasibility study.

 

The importance of feasibility study in project management can only be understood within the context of the types of feasibility studies and their main focus. There are three types of feasibility studies. These three types are the Market, Technical and Financial Study. Technical feasibility places particular focus on the availability of technology that is needed to achieve the objectives of the project. The key considerations of technical feasibility are whether the technology is obtained locally, the costs of the technology if it is to be imported and how relevant is it to the achievement of project objectives. In a broad sense technical feasibility seeks to determine the availability, costs and technological risks associated with technology that is needed to achieve project objectives. For example technologically intense projects such as mining require a detailed technical feasibility study that will determine technological availability, costs and associated risks particularly to the environment.

 

How feasibility study affects in project management?

  • Improves project teams’ focus
  • Identifies new opportunities
  • Provides valuable information for a “go/no-go” decision
  • Narrows the business alternatives
  • Identifies a valid reason to undertake the project
  • Enhances the success rate by evaluating multiple parameters
  • Aids decision-making on the project
  • Helps to meet the objectives of the business.
  • Helps to meet the expectations of the stakeholders.
  • Delivers the work at the right time.
  • Resolves problems and issues much earlier.
  • Responds to risks on time.
  • Manages constraints such as scope, quality, schedule, costs, resources)