Valuation Factors 1
Discussion Thread: Valuation Factors
Michael Angelo Canita
School of Business, Liberty University
Author Note
Michael Angelo Canita
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to
Michael Angelo Canita. Email: [email protected]
Valuation Factors 2
The primary goal of a business manager is to maximize the value of a business for the
stakeholders. However, there are several factors that lead to a valuation of a company’s worth
compared to that of the financial statements and company executives create the most value for its
stakeholders. The business requires a nearly endless variety of assets to carry on. These assets
can be tangible and intangible. Some examples of a tangible asset are plant and machinery, office
buildings and vehicles. On the other hand, intangible assets can be brand names and patents
(Brealey, 2023).
Financial statements provide an overview of a business’ past performance, and they give
stakeholders insight into gauging a firm’s financial strength. Financial managers use financial
statement analysis to gain valuable information about a business’s financial health and future
growth prospects. However, there are some caveats that managers should consider. Financial
statements are based on historical costs, and they do not include replacement cost or inflation,
different companies have different accounting policies, and financial statements contain a huge
number of estimates. Financial managers should be careful because inaccurate estimates would
lead to inaccurate percentages and ratios (Persaud & Persaud N, 2009).
Market sentiment can be interpreted as the overall level of optimism or pessimism about
the economy. Sentiments are offered as another reason that stock market bubbles might develop.
An increase in sentiment can lead to an increase in stock prices. The increase in stock prices can
cause the investors to buy stock prices and push the prices higher (Brealey, 2023). External
factors such as interest rates, inflation, economic growth, regulatory changes, and political events
should be considered during the decision-making process because these factor external factors
can affect the business’ valuation, regardless of the company’s internal performance.
The competitive landscape of a business plays a huge role in creating the most value for
Valuation Factors 3
stakeholders. Having strong brand recognition and a positive reputation can provide businesses
with a solid competitive advantage, which could lead to an increase in customer loyalty and
pricing power. Technology and innovation also play an important role in the valuation of a
business.
References
Valuation Factors 4
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023).<Fundamentals for Corporate
Finance<(11th ed.). McGraw Hill.<
Persaud, & Persaud, N. (2009). Financial statement analysis. In C. Wankel (Ed.), Encyclopedia
of Business in Today’s World (1st ed.). Sage Publications.
https://search.credoreference.com/articles/Qm9va0FydGljbGU6OTcyOTYz?aid=96753
