What is Company Valuation? || How to Calculate Company Valuation? || Company Valuation in Hindi

Summary

The video discusses common misconceptions about business valuation, explaining that many entrepreneurs don't know how to properly calculate it. The speaker, Rahul Malodia, highlights that valuation is not solely based on profit or turnover but also on future earning potential. He gives examples of successful businesses and how their valuation increased over time due to strategic planning. The video provides a detailed explanation of various valuation methods, including financial and non-financial factors, and offers insights on how businesses can improve their valuation. The speaker encourages viewers to watch the full video for deeper understanding.

Takeaways

• 😀 Many entrepreneurs lack the knowledge of how to calculate company valuation effectively.
• 💼 Valuation based on simple formulas like 'percentage of ownership for capital' is not accurate.
• 💰 The correct way to calculate valuation involves considering assets, liabilities, and the future earning potential of the business.
• 📊 Companies are often valued based on future revenue potential, not just current profits.
• 💡 Example: A company's valuation was determined to be 40 times its profit and 6 times its revenue due to future growth prospects.
• 📉 Some successful companies, like Ola and Paytm, have no current profits but are still valued in billions due to their potential.
• 🛠️ Valuation can be calculated in two ways: using past performance data or projecting future earnings and business growth.
• 👨‍💼 The quality and expertise of the company’s team can significantly influence its valuation.
• 📈 Valuation should take into account unique business aspects, like a company's market position, product uniqueness, or market timing.
• 💼 Professional registered valuers can help determine an accurate valuation based on detailed data and future business forecasts.

Q & A

What is the main challenge that most traders face regarding valuation?

Most traders do not know how to properly calculate valuation. They lack the knowledge of the formula for extracting value from the balance sheet and are often confused about whether the valuation should be based on profit or turnover.

What is the common mistake entrepreneurs make when calculating company valuation?

Many entrepreneurs mistakenly base their valuation solely on the amount of investment they need, thinking that the valuation equals the amount of money they require at the moment.

How is valuation related to profit and turnover?

Valuation is not directly tied to profit or turnover. While turnover and profit are important factors, the real valuation depends on the company’s future earning potential, assets, and growth strategy.

What example was given to illustrate how valuation can multiply over time?

The example of a small finance company from Jaipur was given. Initially, the company's turnover was 10 crores, and its profit was 1.25 crores. After investment, its valuation grew significantly over six years, and an investor sold their shares for 5,000 crores, which shows how valuations can multiply despite initial profits.

Why do companies like Ola and Paytm have high valuations despite not being profitable?

Companies like Ola and Paytm have high valuations because investors consider their future potential and market reach. Even without profits, their growth prospects and market presence justify multi-billion-dollar valuations.

What is the future earnings method of valuation?

In the future earnings method, entrepreneurs create a projected balance sheet for the next five years, showing how they plan to expand their business, grow their customer base, and increase turnover. This is used to estimate the future value of the company.

How do factors like team quality influence company valuation?

Valuation can increase based on the quality of the team. If the team consists of highly qualified individuals with expertise in areas like marketing or finance, the company's valuation may rise due to their potential to drive growth.

What is the significance of a company's product uniqueness in valuation?

A unique product that cannot be easily replicated or that holds patents can significantly increase a company's valuation. Investors are willing to pay more for companies with unique products that offer a competitive edge in the market.

How does market timing affect company valuation?

Market timing plays a crucial role. If a company's product aligns with current trends or demands, such as the rise of electric or technical products, its valuation may increase as investors perceive higher growth potential.

Can individuals calculate their own company valuation, or do they need professionals?

Individuals can calculate their own valuation, but professional, registered valuers can provide a more accurate and reliable estimate. These professionals use official methods and consider various financial factors to arrive at the final valuation.