Draw up risk profile
On our website you will have been able to read that, in the case of a valuation in accordance with a Discounted Cash Flow method, the free operational cash flow is discounted according to the time of valuation. The discount rate is determined by the weighted return requirement which providers of loan and equity capital will reasonably impose on the company. The return requirement is determined by the risk that a capital provider runs as regards the capital made available. An element of any valuation is therefore the drawing up of a risk profile of the business.
Draw up risk profile
As an entrepreneur you know the market and your business better than anyone else. You will therefore be able to draw up a detailed risk profile of your business yourself. Het risk profile of a business is determined by the following elements:
- Market interest
- General increments
- Sector-specific increments
- Company-specific increments
The general increments are the increments for a general risk for shares and for the limited tradeability of the shares.
Sector-specific increments relate to, among other things:
- Sector entry barriers and threat of substitute products/services
- Negotiating power/dependency of clients
- Negotiating power/dependency of suppliers
- Rivalry with competitors
- Relative economic sensitivity of sector
- Risk relating to government measures and collective labour agreement
Business-specific risks relate to:
- Relationship fixed/variable costs
- The quality of the profit
- Solvency, liquidity ratios and profit margin of the business compared to competitors
- Quality of management and internal organisation/flexibility
- Dependency and small scale of shareholders.
Sophista can help you draw up a risk profile of your business, or check the profile that you have drawn up. For more information please contact one of our experts.