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Business Valuation Methods



Ghazi Al Mahayni Executive Director

Business valuation is a set of technical and accounting processes that require deep financial and technical skills and expertise to reach a fair price for the institution or asset subject to the valuation process.

The financial valuation process is subject to a set of international standards governing the valuation process in general, issued by the London-based International Valuation Standards Council IVSC.

These standards are subject to continuous and periodic updates and are officially issued by the council.

Valuation methods vary depending on the nature of the investment and the current stage of this investment:

1. Market approach method: This method is relied upon in the case of similar and repeated buy-and-sell positions within the same geographical range of the asset. This method is suitable for evaluating fixed assets such as real estate, cars, and the like.


2. Net Income Approach Method: We usually resort to the net income method when the asset undervaluation is the origin of a product, whether industrial or commercial. This method is the basis for evaluating companies and profit-making enterprises.

3. Cost Approach Method: We use this method when the asset undervaluation is a company in liquidation or ineffective status and in the absence of similar market transactions within the geographical or temporal range.

This is the least common way to evaluate an investment.

Reasons for business valuation:

• Selling the asset subjected to valuation and the need to know its fair value.

• The need for additional funding for the project and the bank-requested valuation of the asset.

• Enter into new partnerships.

• One of the partners withdrew.


Requirements for proper and professional evaluation:

• Long practical experience in the field of finance and accounting, a deep understanding of valuation criteria as well as technical, marketing, and legal expertise.

• Familiarity with all aspects of the asset in place of investment, whether property rights and the legality of the activity, the validity of historical financial statements in case the asset is an investment. The projected viability of the investment plan is verified.

• Consult the specialists in case the asset in question is of a rare nature.

• To ascertain the reason for the real assessment of the asset, which may carry important information for the resident.


Financial evaluation process outputs:

• One of the most important outcomes of the financial valuation process is to give a fair price of the asset in place of investment or the range of minimum and higher.

• The valuation report clearly shows the strength and imbalance of the investment in place and whether it is profitable.

• The Financial valuation Report is an action plan by itself when presented professionally.


Financial valuation parameters:

• The FINANCIAL VALUATION REPORT is valid for a specified period of time from the date of its release due to changing market and asset conditions per se.

• The fair price provided in the valuation process may vary from one side to the other, depending on the difference of years of experience and assumptions on which the evaluation process is based.

Ensure that the entity that evaluated the asset is neutral.


How do I get the right rating company?

• The entity must be accredited and follow the International Valuation Standards if the asset is a profitable asset. Or be a government entity when evaluating real estate or government-approved.

• Check the qualifications of the resident team.

• Ensure the team’s years of experience in the field of evaluation.

• The reputation of the company and the opinion of the customers.


At ACCYBER, we are accredited by the International Valuation Standards Council. You can see the link Our Members (ivsc.org)

Our team has many years of experience in financial management, accounting, and financial analysis and holds international certifications in this field.

We have provided financial evaluation services in the Middle East markets with efficiency and success.

Ghazi Al Mahaini

CMA-CFM

CEO OF ACCYBER


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