Methods of "Income" valuation

Hector Alzate Ramirez
Mind Map by Hector Alzate Ramirez, updated more than 1 year ago
Hector Alzate Ramirez
Created by Hector Alzate Ramirez over 1 year ago


Mind Map on Methods of "Income" valuation, created by Hector Alzate Ramirez on 10/14/2019.

Resource summary

Methods of "Income" valuation
  1. A company valuation determines how much a business is worth. There are three basic valuation methods and criteria: approaches to assets, income and marketing
    1. While no method can accurately assess the true value of a business due to market changes, different approaches tell a different story of a company's value from multiple perspectives
      1. Income approach
        1. It is common in the commercial area in the areas of valuation of goods and in business valuation
          1. Measures the buyer's risk against the company's potential profits. Two methods are used to reach a value:
            1. capitalization
                1. Capitalization uses a formula based on previous results
                  1. Companies with a track record of good performance are better measured by the capitalization method
                2. Discount
                  1. These methods use a formula to calculate the value of the company based on future earnings
                    1. The discount takes into account the risk factors assumed by the buyer
                      1. Untested new businesses, can be better valued with the discount method
              1. Real options
                1. It is considered a very useful tool for business strategy and also a very reliable valuation method
                  1. The decision tree technique was implemented as a key tool in the real-world option valuation method
                    1. In a purchase option (financial or Real), the value of the option behaves similarly to that of the underlying asset. If the price of the underlying asset increases, the price of the option increases as well and vice versa. If the option is for sale, the opposite is true
                      1. Types of real options
                        1. Expansion option
                          1. Contraction option
                            1. Expansion or shrink/change option
                              1. Initiation or deferral option
                                1. Abandonment or term option
                                  1. Sequence of options
                                    1. Outgoing product mixing option (Output mix)
                                    2. Option to mix incoming products ( Input Mix)
                            2. Cost Approach
                              1. It is based on the principle of substitution, which states that no duly aware buyer of the general characteristics of a good would be willing to pay for it more than it would be difficult to replace it with another that provides such usefulness
                                1. Applies to substitutable goods such as valuation of facilities or improvements. The new replenishment value, replacement value, and net replenishment value are applied within this concept.
                                  1. The Cost Approach is the result of the sum of the Commercial Value of the Land plus the Replenishment Value of the Improvements
                              2. Market approach
                                1. They are commonly known as multiple valuation and fall within the group of comparative methods
                                  1. This method calculates the value of a company by comparing it with those similar to it by using defined key figures based on the information of those comparable companies
                                    1. In these key figures the numerator is the value of the comparable companies and the denominator a certain parameter ( Profits, Sales, Cash Flow)
                                      1. The ratio is calculated by comparing the value of the comparable company and is easier when comparables are listed on the stock exchange
                                        1. PER (Price Earning Ratio)
                                          1. Cash Flow Contable Ratio
                                            1. Cash Flow Lree Ratio
                                              1. Sales ratio
                                                1. Costumers Ratio
                                                  1. Ratio units solds
                                                    1. EBIT Ratio (Profit before interest, fees )
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