What is my company worth? This is a question I get as an acquisition adviser almost daily, asked by curious entrepreneurs and of course it is a very understandable question.
Only what are we talking about, de ondernemingswaarde or the share value? After all, there can be a big difference between "the value of my company" also called enterprise value or the "return on my shares" (the share value). Sometimes positive but much more often negative, how is that possible?
This is because de ondernemingswaarde assumes "debt and cash-free," or "free of (excess) cash and (interest-bearing) debt. This means that value does not take into account the financing structure but purely the operational (cash flow) value of the business.
Enterprise value
Simply put, de ondernemingswaarde represents the total economic value of a company. It includes both equity (the value to the shareholder) and (net) debt (the value to creditors) of the business.
In practice, of course, it is not the case that a business consists only of equity. There are often bank loans to finance assets (machinery, inventories, vehicles, etc.) or premises and a current account to finance working capital. In addition, the company may actually have cash on hand. These debts must be interest-bearing, creditors are usually not included but the well-known NOW loans are.
Debt-and-cash-free
To determine the value for the shareholder from de ondernemingswaarde, you will have to subtract the value of the debts. Any cash in the company can be added back in, since that is also the 'merit' of the seller. Specifically, 'debt and cash free' involves the following:
- (Surplus) cash; basically the money in the enterprise that you can take out without any problems through dividends. If the cash is part of the company's working capital, so you need it to "do business," then you cannot include it in the calculation.
- (Interest-bearing) debts; these are debts on which (mostly) interest is paid or repayments are made. These are therefore not regular debts such as creditors, which are again part of the working capital. This may also include (some) provisions.
- "Debt-like" or "cash-like" items; these are items on the balance sheet that are not directly cash but are outside the ordinary course of business. An example of a cash-like item is a receivable of the company from the shareholder.
- (Normal) working capital; We assume that there is enough working capital in the company to keep the daily operations running smoothly: the balance of accounts receivable, inventory, work in progress minus accounts payable must have a 'normal' level. If this is not the case, this is also corrected for.
In practice, during an acquisition the discussion and calculation about what belongs in the 'debt and cash free' position will be important for the final determination of what you as entrepreneur will get for your shares. This negotiation and determination is therefore something for specialists, the importance of which as an entrepreneur should not be underestimated. After all, it also determines what you ultimately receive for your shares!
