Value of entire business

[viciam]

Hi again,

In a situation where I want to purchase a business in its entirety, meaning 100% of the business, what is the most accurate ratio for working out the precise book value of a business.

Is it book value? Enterprise Value or any other ratio?

Once I've worked out the book value, and I then multiply it by shares outstanding, would this give me a figure which offers an estimate of how much the total price would be if I bought 100% of the business?


Many thanks

 

[robusta]

For me I would try to work out how much free cash flow I could pull out of the business in the future. Then see if the price you have to pay delivers a satisfactory return.

 

[McLovin]

Hi again,

In a situation where I want to purchase a business in its entirety, meaning 100% of the business, what is the most accurate ratio for working out the precise book value of a business.

The precise book value of the busienss cannot be anything other than what is written in the accounts. If you want to know the precise value of those assets then no such method exists and all are simply attempts at stating value.

viciam, from reading your posts I take it you're a bit of a newbie at this. It might help for you to read some basic books on accounting and investing. Investing is more art than science and I'm afraid if you are looking for a silver bullet than tells you whether something is good or bad you won't find it.

Having a read of a few basic books might also give you some sort of structure that you can use to develop your own knowledge rather than asking a new question every time you run into something you don't understand.

 

[Knobby22]

Be careful! Get some professional advice.

 

[Klogg]

Hi again,

In a situation where I want to purchase a business in its entirety, meaning 100% of the business, what is the most accurate ratio for working out the precise book value of a business.

Is it book value? Enterprise Value or any other ratio?

Once I've worked out the book value, and I then multiply it by shares outstanding, would this give me a figure which offers an estimate of how much the total price would be if I bought 100% of the business?


Many thanks

May I ask, what is the logic in looking at the balance sheet, converting this to book value per share, then multiplying by the number of shares?
You're essentially dividing by the number of shares, then multiplying out again... Remember, the only reason that things are separate into a 'per share' value, is because you can/want to only buy a certain number of shares in the company - otherwise the metric is useless.

And from an accounting perspective, McLovin is spot on - the book value is what the item is carried at on the balance sheet. That being said, you'd have to figure out if that book value is indeed accurate... or if you believe it's mispriced, by how much?

If you've asked the question because you plan on actually doing this, then a professional opinion can't hurt.