Identify 4 common methods of evaluation

Expert: The financial evaluation of companies protects them from default and maintains the continuity of their success

  • Mohamed Helmy: “The evaluation of companies aims to determine their financial position, and to know the extent of their ability to continue in the economic market.”

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The financial expert and tax agent, Mohamed Helmy, said that the periodic financial evaluation of companies protects them from stumbling and maintains their continued success.

He added to "Emirates Today", that we often hear about companies that were financially superior for several years, then failed after a short period, due to their administrative weakness, and others that were administratively and financially distinguished, and their profits appear over their competitors, and then do not continue, due to several reasons, in Chief among them is the lack of financial evaluation.

Financial evaluation

Helmy defined “financial assessment” as a financial and accounting method used to determine the company’s financial position in the local market, and corporate assessment is defined as the method used by financial analysts and management accountants to know the company’s total financial value, and is linked to determining the value of assets, liabilities, and any financial restrictions Other consequences for the company, pointing out that the evaluation of companies aims to determine their financial position, and to know the extent of their ability to continue in the economic market within their field of work.

Evaluation steps

Helmy indicated that there are steps that are taken to evaluate companies in a correct manner, namely: preparing a list that includes all the company’s external and internal contents, taking care to add information related to the company, whatever its nature, and then using one of the companies’ evaluation methods, to start setting the stages that will be relied upon In evaluating the company, knowing the company’s financial position, the value of its capital, and the shareholders’ shares in the capital, followed by studying the company’s legal status through the assistance of a legal expert to ensure the application of legal texts to the nature of the company’s work

Helmy stressed the need to end all financial transactions that are suspended, or that have not yet finished, especially in the event of evaluating the company in order to sell it, as well as providing external shareholders and dealers with a report on the company’s status if necessary, especially if they have financial rights owed. The company, then writing and drafting a company evaluation report in accordance with the legal and financial rules designated for this type of report, and handing it over to the official management of the company, or to the new owners.

Familiar ways

Helmy indicated that there are four well-known methods for evaluating companies, which are: “Evaluation at net book value”, which is a method for evaluating companies based on the net value of their assets, after collecting all kinds of liabilities, whether they are debts or unpaid financial obligations, and “Evaluation at book value.” “Adjusted”, which is the method that works on recalculating the values ​​of assets and liabilities in companies, and comparing the actual and book values ​​with linking them to a set of economic influences, such as: the inflation rate, net shareholders’ equity, and then working on adjusting the book values ​​to the real values, or actual reached.

He referred to the “replacement value appraisal” method, explaining that it is a method that links the company’s capital when it is established with its capital at the present time, and depends on the evaluation of the company, by relying on linking its condition when it was established in its current capital;

That is, it replaces the current situation of the company with the previous situation, so this method is considered one of the evaluation methods that are criticized by many analysts and financial accountants.

As for the "cash flow evaluation" method, it is the method that depends on formulating a set of suggestions and predictions about the company's financial position, by relying on studying the financial details related to cash flows;

Any financial operations that take place within the company such as buying and selling, and other operations.

Helmy pointed out that this method of evaluating companies is one of the most widely used evaluation methods.

Advantages of corporate valuation

■ Contributes to determining the net value of private equity in companies.

■ Determining the value of obligations, expenses, and debts incurred by companies.

■ It helps to determine the value of the company's shares before offering them to the financial market for trading.

■ Supportive tool for the corporate integration process

■ It provides real values ​​for the partners' shares in joint stock companies, especially if one of the partners wants to sell his share.

■ It helps in the process of liquidating companies with the aim of selling them, or closing them completely.

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