<div>again, it's a lot more complicated than a simple return on investment period. </div>
<div> </div>
<div>Example:</div>
<div>If i had $800,000, i could do one of 2 things:</div>
<div>1. buy government bonds and take home 5% a year (or whatever is the risk-appropriate benchmark), say $40,000 a year</div>
<div>2. but a company that generates $200,000 a year.</div>
<div><br>Either way my money is tied up for 5 years. The key is what I end up with at the end, not the cash flow during the period. Return on investment (payback period) is a good method if you're comparing 2 similar investments, but here, see what happens:
</div>
<div>with option #1 i have 1 million dollars (ignoring compound interest) - my original 800,000 + the interest</div>
<div>with option #2 i have 1 miliion dollars (my profits) + whatever the company is worth at the end of the period (i.e. all my profits, plus the principal). </div>
<div> </div>
<div> </div>
<div>as you can see, how i value what the company is worth at the end is the critical variable here, it is what makes me decide whether to buy the company, or not (and buy govt bonds instead).</div>
<div>This means when i look at the end of the period, I have to assume a steady-state profit from there on, which i can then do an NPV on, and valuate today (or use some other method to value the future profits).</div>
<div> </div>
<div>It's all about opportunity costs.<br> </div>
<div>-yair</div>
<div> </div>
<div><span class="gmail_quote">On 2/19/06, <b class="gmail_sendername">Ron Arts</b> <<a href="mailto:ron.arts@neonova.nl">ron.arts@neonova.nl</a>> wrote:</span>
<blockquote class="gmail_quote" style="PADDING-LEFT: 1ex; MARGIN: 0px 0px 0px 0.8ex; BORDER-LEFT: #ccc 1px solid">Yair Hakak wrote:<br>> I don't know anyone who would value using such a method. After 4 years i<br>> assume the company is going to be vaporized?
<br>> This may be how you value something with a short asset life (a car, for<br>> example) but it's far to primitive a method to value a going concern with.<br>><br><br>Maybe my example was not clear enough. What I meant was: if I spend $800000
<br>on a company that generates $200000/year on profit, it takes 4 years to<br>recoup my investement before I start making money.<br><br>Ron<br><br>> -yair<br>><br>> p.s. no offense meant, contstructive criticism only. Your point about
<br>> valuing from the point of view of the buyer, however, is very well taken.<br>><br>><br>> On 2/19/06, *Ron Arts* <<a href="mailto:ron.arts@neonova.nl">ron.arts@neonova.nl</a><br>> <mailto:<a href="mailto:ron.arts@neonova.nl">
ron.arts@neonova.nl</a>>> wrote:<br>><br>> CC Asterisk wrote:<br>> > Well basically we have a small service company with about 3200<br>> subs. We<br>> > are exploring the possibility of selling it to an ITSP. My main
<br>> question<br>> > was beyond the formulas - is there some kind of accepted valuation in<br>> > the VoIP industry.<br>> > Our churn in the last 2 years has been about 0.8% a month. We
<br>> work in a<br>> > specific niche and have been growing nicely there.<br>> ><br>> > Does that help?<br>> > Mark<br>> ><br>><br>> I can offer you a more traditional way of looking at it:
<br>> suppose I buy your company. I do that because I want to make money.<br>> When? Well many people say after 3-4 years. Suppose you have a yearly<br>> profit of $200000. If I want to make money after 4 years I would
<br>> not pay more then $800000 for your company.<br>><br>> Figures are just examples, and I know there are more things to consider<br>> like growth potential, intrinsic value etc, and this may not be
<br>> applicable<br>> in new and fast growing industries, but try to think like a<br>> potential buyer,<br>> and try to find the buyer that sees the most value in your company.<br>><br>> Basically value is in the eye of the buyer.
<br>><br>> Ron<br>><br>><br>> _______________________________________________<br>> --Bandwidth and Colocation provided by <a href="http://Easynews.com">Easynews.com</a><br>> <<a href="http://Easynews.com">
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