Independent Opinion: One of the most important factors to consider when hiring a corporate finance advisor is not only their experience and knowledge in the field, which is extremely important, but also their independence, which should be based on the premise of an "independent opinion" or "fairness opinion".

When it comes to making important financial decisions for a company, having a corporate finance advisor is crucial to ensure that the best possible decision is being made. However, not all advisors are equal, and it is important to consider not only their experience and knowledge in the field, but also their independence.

Independence in financial advice is crucial because it allows the advisor to provide an objective opinion free from personal or corporate interests. This is particularly important in situations where there may be potential conflicts of interest, such as in mergers and acquisitions or situations where shareholders' interests may be in conflict.

The "independent opinion" or "fairness opinion" is a useful tool in these cases. An independent opinion is an objective evaluation of the fairness and justice of a proposed financial transaction, conducted to assist stakeholders in making informed decisions. This opinion is based on a detailed analysis of available financial data and may include recommendations and warnings about potential risks or concerns.

The importance of independence in financial advice has become increasingly evident in recent years, especially in relation to large mergers and acquisitions that have come under public scrutiny. Companies must ensure that the advisors they hire are committed to objectivity and fairness in their work and are not influenced by personal or corporate interests.

In summary, while experience and knowledge are important when choosing a corporate finance advisor, independence is equally crucial. The "independent opinion" or "fairness opinion" is a useful tool to ensure that informed and fair financial decisions are made for all parties involved.

Web pages

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Studies cases

Do You Know How Much Your Business Is Worth?

"PDVa helps you assess the value of your assets (tangible or intangible) and operating businesses (enterprise)."

Data

American Society of Appraisers, ASA Business Valuation, Standards

WORLD BANK GROUP, EVALUATION PRINCIPLES

The Present Value of Corporate Profits: A Forecasters’ Survey Perspective

We often use the terms value and price interchangeably, but if we take a moment to consider the difference between the two concepts, we may not arrive at a clear conclusion.

Semantically, we can see differences between price, which is the final amount resulting from a transaction between a buyer and a seller, and value, which can be inherent to the subject. For example, a painting may have a price in the market, but it may also have sentimental value to the seller that is very high or difficult to determine.

In corporate finance, the market sets the price, although inefficiencies in the market can sometimes occur. But what happens when we don't know market prices?

In these cases, we determine the value of the asset by approximating a market that we consider perfect in its economic denomination. Therefore, a valuation process determines the value of an asset Y, and through negotiation, we approach the price of that asset.

Fair market value represents the amount at which a buyer or seller can agree upon if there is no pressure between them and each of them has all the relevant information for decision-making. In English, fair market value is determined as the real market value.

Fair Market Value refers to the current price of a good or service in the market, i.e., the price at which that good or service is being sold or purchased at a particular point in time. This value is determined by the forces of supply and demand in the market and can vary over time depending on factors such as product availability, competition, and market trends

Fair Market Value is often used as a reference to establish the fair price of a good or service in a commercial transaction, whether for buying or selling. Sellers can use this value as a basis for setting the price of their products, while buyers can use it to compare prices and make informed purchasing decisions.

It is important to note that Fair Market Value may differ from other reference values, such as nominal value or intrinsic value of a product. For example, the nominal value of a currency may differ from Fair Market Value due to factors such as inflation and fluctuating exchange rates.

The goal of the valuation process is to determine the value of a company. However, for many people who are new to corporate finance, the question is often asked: What does that value mean?

Valuation determines one or several values, which vary according to the method or purpose of the valuation. Generally, it expresses an independent opinion of the value or price of a certain asset under the premise of continued use, meaning that the asset will continue to be used in its current state, and if it is decided to sell it, it will be done in an orderly manner. This value can be defined as the "fair market value" in English.

The value of a company is a measure that indicates how much the company is worth in monetary terms. In other words, it is the amount that investors would be willing to pay for the company in the event of a transaction. The value of a company can vary depending on several factors, such as its size, profitability, cost structure, market position, asset valuation, debts, etc.

There are several ways to calculate the value of a company. Some of the most common are:

• Market value: calculated by multiplying the number of shares of the company by the price of each share in the stock market.
• Book value: calculated by subtracting the company's debts from its total assets.
• Discounted cash flow value: calculated by estimating the future cash flows that the company is expected to generate and discounting their present value.
• Multiples valuation: calculated by comparing the company with other similar companies in the same sector and using valuation multiples (such as the price-earnings ratio) to establish its value.

It is important to note that the value of a company is an estimate and may be subject to changes based on market conditions and other external and internal factors that affect the company.

For example, the stock market constantly values a company's shares based on supply and demand, determining its market price. When valuing a company that does not trade on the stock market or has no secondary market, we conduct a valuation study to determine the fair market value of the company's shares, which should approximate the price that the shares of the company should reach under normal conditions without any pressure from supply and demand.

Generally accepted methodologies are used to value a company. All valuation methods are based on three basic principles or valuation methods. Below are the three basic valuation principles:

• Multiple Valuation: This method compares the company or asset with similar ones in the same sector. Multiples such as price/earnings ratio (P/E), price/sales ratio (P/S), and price/free cash flow ratio (P/FCF) are used to establish value.
• Discounted Cash Flow Valuation (DCF): This method estimates the future cash flows expected to be generated by the company or asset and discounts them to present value. This method can be complicated due to the need to estimate future cash flows and the appropriate discount rate.
• Net Asset Valuation: This method values the company or asset based on the value of its assets minus the value of its liabilities. This method is suitable for companies or assets with a large amount of tangible assets such as real estate or machinery.
• Transaction Comparison Valuation: This method compares the sale price of similar companies or assets to establish a reference value.
• Real Options Valuation: This method is used to value projects or companies that have real options, such as the possibility of expanding or reducing based on market conditions.

In a valuation process, the methodologies used are based on the above principles. Sometimes, it is ideal to use all three methods, but given the conditions of the objects and the information collected in the market, we can only use some of them and in some cases, we must make modifications to those methods.

Each valuation method has its own advantages and disadvantages, and it is important to choose the appropriate method for the company or asset being valued. Additionally, it is important to remember that valuation is an estimation and may be subject to changes based on market conditions and other factors

Valuing a company means knowing its monetary worth in the market. It may seem that the only reason to know this value is to sell the business (through mergers and acquisitions).

However, there are many other important reasons to value a business, such as:

• Presenting our company to potential investors
• Analyzing our debt capacity
• Accounting or tax effects
• And more.

I want to emphasize that knowing the value of our business can be one of the main indicators of management. Our goal is not to make money, but to create value, and the only way we can know if we are creating value for society is by valuing our company.