Business valuations follow sour economy downward - Kansas City Business Journal
Friday, July 23, 2010
Special Report: Top 150 Private Companies
Business valuations follow sour economy downward
Kansas City Business Journal - by Morgan Chilson Contributing Writer
Business valuations have taken a hit in the past few years as owners function in an environment where it’s tough to predict future earnings.
“Theoretical valuation of a company is based on the dividend that company can pay in the future because you have to generate a return on your investment,” said John Hense, managing director of CC Capital Advisors. “We were on a 20-plus-year incredible growth rate in the United States, pretty much across the board. And all of a sudden, the brakes were slammed on that growth, and there was doubt as to whether or not we could experience that type of growth in the future. When that occurs, it’s going to have a negative impact on valuation.”
Profitability is the fundamental driver of business valuation, said Tim Skarda, president of Allied Business Group. At least one national statistic he heard said that in 2009, 90 percent of companies had a drop of revenue between 10 percent and 40 percent.
“It was a pretty strong statement,” he said. “I would attest from my experience, a lot of businesses have been hit significantly.”
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