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hi all
I am in a small technology company and wanted to do a valuation of the same. I am using the DCF method.
My question is: what would You (probably more experienced in finance than me) use for a discount rate?
My current approach is based on equity financing only:
WACC = risk free rate + risk premium * beta = 15%
where
risk free rate = 2%
risk premium = 6.5
beta = 2
Our company has only 5 years of operation and currently an annual turnover of around 20 MMUSD with high profitability (30%) on technical services. We want to expand into product development and we project a long term turnover increase to 100 MMUSD if successful in doing so. The technical risk is high in the development process and it will require a lot of capital (we are in the business of power generation).
Is 15% reasonable or should it rather be 20-25%? (or even higher???)
thanks a lot!
Topic starter
Posted : 01/12/2011 9:11 am
Re: Company valuation tips
You should try contacting an accountant in your area. They might be able to help you out with deciding. The only problem is that paying an accountant might change your rates displayed above as it will be included as part of the investment.
Posted : 16/12/2011 7:50 pm
Re: Company valuation tips
Valuation is not always same. You have to understand the current flow of economy in the country. It is advise to discuss this matter with a legal adviser.
Posted : 17/12/2011 4:34 am
Re: Company valuation tips
For medium sized businesses people quite regularly use a multiple of annual profits to determine value. This could be a multiple of EBITDA (earnings before interest taxes depreciation and amortisation), EBIT, adjusted EBIT etc etc. If you have a strong forecast and a track record of meeting your budgets then you may be able to get a multiple of your forecast earnings (which would obviously give you more).
I would suggest looking at the PE ratios that similar listed businesses in your market are achieving and discount that a bit to get an idea of what you could achieve.
In relation to the DCF rate 15% seems pretty high anyway. The right rate to use in your market will be dependant upon a number of factors including the current inflation rate (which is low in almost all markets).
Posted : 17/12/2011 11:36 pm
Re: Company valuation tips
Company valuation always depends on goodwill. If your company has a good image then it will be valued more.
Posted : 25/12/2011 12:28 pm
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