free small business advice & information
Main Menu
Hot Links
Page 8 of 10
Valuing a Business
7. Discounted Cashflow
This method is the most technical way of valuing a business. It depends heavily upon assumptions about long-term business conditions.
7.1 It is used for cash-generating businesses which are stable and mature.
- For example, a water company with a local monopoly.
7.2 The valuation is based on the sum of the dividends forecast for each of the next 15 years (at least), plus a residual value at the end of the period.
- The value today of each future dividend is calculated using a 'discount interest rate', which takes account of the risk and the time value of money (£1 received today is worth more than £1 received tomorrow).
7.3 If a business can inspire confidence in its long-term prospects, then this method underlines the business' solid credentials.
Labels: Buying/Selling a Business
Related Articles
Monthly Prize Draw!
Win £375 worth of advertising for your business.
Enter our competition by either:
- Signing up to the is4profit Small Business Newsletter or
- Entering your firm's details into the Small Business Directory