Estimating Company Value

How is the firm value estimated? How is a valuation performed and what falls within its scope? The stages within the scope of estimation and/or calculation of the firm value are as follows:

• ‘Equity’ on the balance sheet of the company provides important information in terms of the book value of the company.

Is this information enough?

Unfortunately, this information is not enough. Because the current accounting standards applied in the firm value estimating process and the Tax Procedure Law (TPL) do not allow the value of the assets registered in the firm asset to be equal to the market value or the performation valuation studies in this direction.

International Accounting Standards (IAS),  International Financial Reporting Standards (IFRS) Applications and Calculating Company Value

When we review the applications of IAS and IFRS;

‘Financial statements prepared in accordance with local accounting standards are insufficient to provide the desired financial information to international markets and investors in these markets. “International Accounting and Financial Reporting Standards (IAS and IFRS)”, which arise from the necessity of financial statements to be understandable, consistent, real, transparent, and comparable, are expected to cause significant changes in the local financial reporting approach.

In this context; In IAS / IFRS, there are applications for “Assets bring the book value closer to the market value”.

Before the firm value estimation process is completed, within the scope of the firm valuation’ study, the valuation of the properties in the asset is needed.

Net Asset Value / Adjusted Book Value should be reached.

• Values of properties that are in the assets, which will affect the value of the firm, need to be carried out by experts or Real Estate Appraisal companies. Thus, the book value of the properties in the firm assets can be converted into market value.

• Net Asset Value / Adjusted Book Value may be sufficient for some companies to express company value.

Example: Firms whose only activity is to invest in real estate. Adjusted Book Value may express the market value of the firm since the value of the assets will be equal to the market value.

• To measure the activity value of the company after the asset value is reached; valuation is required with the market approach (multipliers) and the income approach (discounted cash flows). These methods are the basic practices of the Firm Valuation’ study.

Apart from organized markets, in our country, the value of a firm is often accepted to be its book value, there is no consensus between parties, and the calculation of the market value of a firm is approached distantly, including in legal cases. However, that the declared value / registered value of a real estate in the land registry record does not equal its market value is accepted both in financial markets and in legal situations, the market value for real estate should be calculated.

If you are interested in the calculation of the company value, you may also be interested in our company valuation article.