When someone intends to sell or acquire a business, many doubts arise, with the main one being, what is that business really worth?

Answering that question is not easy, as beyond the objective elements (which, as we will analyze, are not so objective), there is an emotional aspect for both parties. Logic tells us that the buyer will always want to pay as little as possible, and the seller wants to obtain the highest price possible, and the meeting, always excluding biases and connections between the parties, will determine the market price. However, what strategy should be followed in these cases? How much should one increase or decrease in order for the transaction to be successful?

VALUATION CRITERIA

There are many criteria for valuing businesses. The main ones, which are not necessarily the most suitable, are the following:

• Book Value: The value reflected in accounting, meaning the net equity or the accounting result.

• Net Asset Value: While one might think this coincides with the book value of net equity, it would be necessary to value the assets and liabilities at market prices and calculate the difference.

• EBITDA Multiplier: For those unfamiliar with the term, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In layman’s terms, this refers to the business’s ability to generate cash flow from its core operations, without considering its financial structure, taxes, or «fictional» losses (such as depreciation).

• P/E Ratio: This ratio comes from the English Price per Earnings Ratio, meaning it compares the price with the ability to generate profit.

• NPV: Net Present Value, or the expected future cash flows, discounted to the date of the valuation.

• Comparable Transactions: Having benchmarks is always helpful, although this is often the most difficult due to the lack of truly comparable transactions.

• Goodwill: The intangible or intrinsic value of the business, beyond what the financial results may reflect. It has some connection to the NPV.