What valuation can and cannot tell you
Valuation estimates economic value using data and assumptions. It can support ownership changes, a business sale and planning. Estimated value is not a promised price: payment terms, control rights and risks identified during negotiation also matter.
Define the purpose and valuation date. Valuing the entire operation is different from valuing an ownership stake. Documenting the distinction avoids comparing figures that represent different things.
Data to gather before you start
Organize financial history and record the source of each figure. Separate observed facts from projections: contracted revenue and a sales forecast do not have the same degree of certainty.
- Income statements: revenue, costs, expenses and operating income by period.
- Balance sheet and capital employed: operating assets, inventory, receivables and operating liabilities.
- Cash, debt and financing terms to interpret the bridge from operating value to equity value.
- Non-recurring events and owners’ expenses mixed into operations, with documented adjustments.
- Growth, margin, reinvestment and risk assumptions, with supporting explanations.
A practical valuation workflow
Start by checking historical data and necessary adjustments. Then describe how revenue, margins and capital needs may evolve. Growth must be consistent with operating capacity and required investment.
Compare returns with the cost of capital. Test the base case against lower margins or higher investment needs. Explain which assumptions drive differences instead of presenting only a final number.
- Define the purpose, reference date and scope.
- Review statements and explain adjustments.
- Build projections that link operating results to invested capital.
- Compare scenarios and present limitations alongside the result.
Example: operating income is not all the value created
Consider a hypothetical company with BRL 1 million of invested capital, BRL 180,000 of annual after-tax operating income and a 12% annual cost of capital. The capital charge is BRL 120,000; economic surplus is BRL 60,000 for the period.
That surplus is annual EVA in this example, not the company’s value. Estimating operating value requires projecting future results and explaining the treatment of growth, reinvestment and risk.
- Invested capital
- BRL 1,000,000
- After-tax operating income
- BRL 180,000
- Cost of capital
- 12% per year
- Capital charge
- BRL 120,000
- EVA for the period
- BRL 60,000
Using Valueva in this process
Valueva brings together company registration, valuation inputs, analysis history and monthly value-based management. The workflow continues with goals and action plans according to the features available in the selected plan.
Use history to compare revisions and discuss operational changes. Useful interpretation depends on the quality of inputs and review of assumptions; software does not replace that analysis.
Before using a result in negotiations
Check that rates and results refer to the same period and that nominal and real values are treated consistently. Do not extrapolate an exceptional month indefinitely.
Present the date, sources, scenarios and limitations. For ownership decisions or transactions, have the responsible professionals review inputs and adjustments. This introductory guide and its example are not a valuation of your company.
Sources and references
References for the concepts discussed. Examples are educational and do not represent customer results.