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Why Business Models Help Company Valuation in UAE

In business management, several different situations call for company valuation in UAE. An independent valuation is needed in satisfying the requirements of investors, answer the inquiries of lenders, and/or prepare for a future merger or acquisition. Regardless of why there's a call for company valuation, it's calculated using decision-oriented or market-oriented methods. But, the business model is now also used by third parties in the process of company valuation.

Some of the reasons why Business Models Help Company Valuation in UAE:

  • Accurate assumptions on risks and company growth – third parties such as lenders, government regulators, and investors utilize a company’s business model in getting an accurate assumption on the risks associated with the business and growth estimates. This is particularly helpful for new, innovative businesses that don’t have historical data which can be problematic in terms of defining and forecasting revenue and growth. 
  • Understanding company's revenue streams and cost structures – by reviewing the business model, it leads to a better understanding of revenue streams and cost structures, resulting in a clearer view of a company's free cash flow. This helps businesses estimate costs and revenue more accurately to make more informed business decisions.
  • Identification of competitors – a business model of a company allows the identification of who exactly are its competitors, helping better define risk and company growth. 

You may want to know: Benefits of the Financial Audit for Your Company in Dubai

Other ways to determine company value 

  • Book value - this is the least accurate and simplest company valuation methods. It focuses mainly on the company's balance sheet and assets' book value minus the existing liabilities. Although there are a couple of flaws with this approach, it's still employed commonly by valuation experts. In UAE, it's given little weight in relation to other company valuation methodologies. 
  • Financial market comparable - financial markets assess valuation to shares being traded for every company. it provides a good basis in determining a company's value, particularly in comparison to other companies. The method looks at the next twelve months or last twelve months of revenue, as well as taxes, amortization, depreciation, and earnings before interest. Company valuation experts input the present and projected performance of the company next to average multiples for each category. They'll come up with estimated values for every category. The experts will then determine the weighted average for different estimates to arrive at a company valuation.
  • Financial audit - a financial audit in UAE enhances reliability and credibility of figures that are being submitted to prospective buyers, lenders, and stakeholders of a company. This makes numbers a lot more reliable for financial institutions as there's been an independent review conducted. There are a lot of potential users of reports from financial audits in UAE, including bankers, relevant tax authorities, employees, insurance companies, suppliers, and donors.

At Farahat & Co, our team of seasoned experts on financial audit in UAE performs reviews and deliver quality engagements to add value to companies. Every business is unique, which is why our qualified professionals offer various engagement types based on the specific needs and requirements of your business. Our experts can help you prepare and/or implement company valuation in UAE. To know more, call us today!

Find more info: Audited Financial Statements

Why is Company Valuation in UAE important?

Understanding a company's value is crucial, mainly for the following: 

  • Having bargaining power for a merger or acquisition - if there's an interest party that's approached your business and offered to buy it, you should be ready to show what its value is, its- asset withholdings, how a company has grown in a certain period of time, and how it's going to continue growing. Interested parties are going to attempt to acquire a business for less. With company valuation, you'll know the exact value of a company, allowing you to negotiate a company's purchase price. In the event that you're offered less for the company than what it's worth, then you should offer to enter into a negotiation or reject the deal entirely. it will help all relevant parties come into an agreement.
  • Achieve a high selling price - with company valuation, you'll have the opportunity in taking time to increase your company's value and achieve a high selling price should you plan on selling it in the near future. Also, understanding the resale value of your company will let you negotiate for a much higher selling price. Experts such as financial audit firms in UAE can offer a list of the comparable transactions in order to assist in the solidification of a stance for a high selling price.

You should know: Financial Audit Procedures for Small Organizations

What is involved with the process of Financial Audit in UAE?

A lot of steps are taken by experts in performing financial audit including reviewing of information systems, looking at the record-keeping policies of the business, reviewing the company's accounting system, checking for internal control policies, reviewing tax returns, comparing internal records and performing tests for controls.

Jose’s entire educational and professional career has circled around audit and assurance. While in India, he became a CPA and worked as an accountant and an auditor. Afterwards, he relocated to Dubai, where he joined Farahat & Co. as an auditor. He is currently assisting UAE mainland and free zone businesses with their compliance needs. With a reputation for proficiency, quality, and reliability, clients refer to Mr. Jose for independent assessments of organizations structures and operations.