You can measure the value of a manufacturing firm using a number of well-known methods under the market, income and asset approaches to business valuation. However, to get accurate business valuation results you need to focus on two key points.
1. Identify and include all income-producing assets in your manufacturing company valuation.
More so than most other business types, manufacturing firms use a large number of assets. Property, plant and equipment typically represent a large portion of the manufacturing company’s investment.
Off-balance sheet assets such as internally developed intellectual property are very common. Product and process technologies can be licensed to generate additional income streams which increase business value. At the same time, a manufacturing firm may have some assets on the books that do not currently contribute to income generation. Other assets, such as plant capacity, may not be fully utilized to produce income. If fully exploited, the value of these assets can be substantial.
2. Use a realistic cash flow forecast and business risk assessment.
Manufacturing firms invest heavily in developing new products and processes. And all products have a finite life cycle. Without constant innovation, technology obsolescence sets in quickly, reducing the income derived from product sales.