April 28, 2021

Jose C. Corcione

Reference Rating

There are several methods of valuing a company's stock or the company as a whole. Some more accepted than others. But the most common is the method of Gordon – Shapiro or Discounted Cash Flow method. Even so, we see that many times in casual conversations it is indicated that this or another company was sold for “X times EBITDA” or X Times Book”. In reality, this phrase needs one to continue it and that is: “When the industry parameter is Y”. After this second phrase (which I rarely hear) we could determine if it was sold for a higher or lower value within its sector. Just as each industrial sector has its financial measurement parameters, when a company is sold, the company is within an “Industrial Sector” that has its financial parameters defined by statistics. The American market, which has statistics on everything, publishes statistics on the sales of companies in different sectors. There we can see the references of the “EBITDA Times” or “Book Value Times” parameters that have been statistically recorded. This is a valuation based on Cash Flow or based on what the company produces.

Valuations in the Real Estate market:

In this market, as in the previous one, I have seen in my professional career that there are 3 main methods of valuing a property and real estate. Here in Panama we use a hybrid, which is basically reference values ​​of what similar properties have been sold for. This is thanks to the fact that we have the Publio Registry that maintains transparency of transactions. In other markets, they make a valuation like the one explained above of the cash flow and the value of the property and real estate is based on the cash flow that it produces. At the end of the day, both real estate and a company are worth according to the negotiation between buyer and seller.