How Does Comparable Company Analysis Work?

There are numerous methods of business valuation used in Malaysia such as comparable company analysis and asset-based comparable valuation. These methods vary from organization to organization, depending on the type and scale of the company.

 

In addition, if you have outsourced your accounting services to an accounting firm in Malaysia, then the firm will decide the best suitable valuation method for your business.

 

Asset-based valuation means the type of valuation in which the value of the business is determined depending on the comparable values of the assets and the total market value of the assets after minimizing the liabilities.  Once all of the assets are fully evaluated, fair market value is obtained on the basis of the entire comparison and analysis.

 

A traditional example of asset-based comparable analysis is when property owners work with appraisers to determine the worth of several properties in the same area. When the price of a specific property increases, the cost of other properties around it will also increase.

 

Therefore, the new value will be decided as per the asset-based evaluation because liabilities will happen at a market rate. Typically, when asset-based valuation is used, no other method of valuation is necessary. However, accounting firms in Malaysia might prefer using a combination of valuation methods to produce the most accurate results.

Important Components of Asset-Based Comparisons

Cost is an asset-based comparable valuation that includes considering the cost of each and every important part of a business such as modern machines, equipment, technology, furniture, lost income and every important item and asset that a business has.

This type of thorough analysis is essential to make sure proper comparisons can be made between the assets of different departments of the company so that an accurate price value of the company can be estimated.

It is also important for the accounting firms in Malaysia to consider the financial and functional usability of assets. Some companies can have intangible assets like outdated equipment and technology. Technological equipment plays a huge role in asset evaluation.

 

For instance, if a company is manufacturing vacuum tubes while another one is in the business of providing nanotech, then these types of comparisons must be kept in mind while evaluating the financial conditions of business.

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Advantage

Many organizations in Malaysia will find comparable asset-based analysis to be helpful when they are suffering from financial problems like liquidation.

 

Moreover, companies in the financial industry and real-estate sector are able to compare the value of different companies, business processes, properties and various other assets to determine the price of an organization. In industries where assets are evaluated on the basis of income or market approach one can use asset-based valuation.

Disadvantages

Asset-based valuation has some serious disadvantages as well. Unlike the rest of the business valuation techniques, a comparable asset-based approach ignores the potential earnings of a company. It means that the value is evaluated on the basis of the current assets possessed by the company and profits projections are entirely removed.

 

As a result, it is highly possible that the actual price of the company could be much higher than the estimated one, especially if it is expecting to earn a massive amount of profits in the future.

 

Furthermore, it is important to note that many products that are produced by the company are often not included in a balance sheet due to intangible products and technology. As a result, it is difficult to keep into account the cost of the intangible resources of a company during asset-based comparable valuation.

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In a Nutshell

Business valuation is much more than just determining the price of an organization. It involves a set of strategies, tools, and techniques required to assess the financial condition of a company from different angles before any conclusion can be made about the company’s worth. Accounting firms in Malaysia are capable of conducting efficient and reliable business valuations because they have expert accountants who can perform thorough comparable company analysis and asset valuation.

 

In order to make sure that the comparable asset-based approach is properly executed, you should hire an accounting firm in Malaysia because its experts will have the knowledge, skills and experience to evaluate the value of your business accurately. Such an option is also important when you find accounting to be a challenging task. Reliable results of a business valuation ensure you are able to make the best decisions for your company.

 

Overall, comparable asset-based valuation is an extremely flexible method of determining the value of a company. It has some very general rules. Otherwise, it is up to the accounting firm in Malaysia to design an efficient and reliable method of business valuation to ensure it is capable of producing the correct range for the value of a given business. For more information, feel free to get in touch with us.