How to Value a Company in 3 Easy Steps

Description
When we say "valuing a business," we're actually trying to answer the question, "how much is a business worth?"If, for example, you wanted to buy a store, before you buy from the owner, you have to find out how much the business is worth.This is where financial managers and accountants have different philosophies. For most accountants, the way they would value a business is to look at the price of the assets, and the price of the liabilities or the debt. They then subtract the debts from the assets and come out with what is called "owner's equity." This is how they value the business.The amount of owner's equity is how much the business is worth.

However financial managers don't take into account the asset value or the owner's equity. What they do care about is the present value of the free cash flows, or simply how much the store actually earns. So even if the store has assets worth $10,000, if it only earns $5 a year, then it is a bad business and not worth very much.

This video goes on to explain their method of valuation in 3 easy steps using simple language.

Length: 9 minutes 39 seconds