Friday, 14 October 2011

Valuing a Company Using Its Abbreviated Accounts

You’re probably aware of the requirements for filing at Companies House [] and certainly with smaller companies, you have limited data to make any informed financial decision.

For those who want to value their own business or are looking to purchase another can look at the assets and liabilities to come up with a figure. A solvent company should be able to shut down all its operations, sell any assets, and pay creditors. The cash remaining establishes a floor value for the company. This approach is known as the net asset value or cost method valuation.

Watch out for weak performing companies that have strong tangible assets as this will skew your calculations.

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