Customer Based Corporate Valuation : Integrating The Concepts Of Customer Equity And Shareholder Value

Retention is a reflection of a customer’s willingness to remain with a particular company’s service or products and is useful to measure customer loyalty. The relationship

Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010).

The main objective of retention is to continue ongoing relationships with customers. Brand loyalty is considered difficult to measure. So, experts generally use customer engagement as an effective indicator of loyalty.

Valuing organizations starts with the financial statements and moves through the current position of the firm into the future forecast of the firm’s position. The financial statements paint a picture of not only how the company is, but how they have performed over the last x-number of years. Factors to look at would be net income, cash and A/R, debt and A/P, current and past sales. These factors start by painting the picture of what has happened up to now within the organization and what they have on hand for future operations. Is net income (profitability) high or low? Is the firm laden with debt of a high accounts payable? Is the firm growing, retrenching, or remaining stable based on sales data. These are the first places that you as a valuator must look. Secondly, you must evaluate the future objectives of the firm. This will also be sourced from within the financial statements, more directly the Performa’s produced by the organization to detail projected revenues over the next number of x- periods. These Performa’s are going to be the crux of this valuation how to assessment.

DCF valuation can provide an estimate of intrinsic value of the business by capturing its underlying fundamentals including WACC, cost of equity and growth rate. The intrinsic value of the business provides an estimate of present value of cash flows that the company will pay its shareholders and therefore it should help investors to identify companies that are inexpensive compared to its peers.

Another popular method of valuation is Comparable Company Analysis process. This process focuses primarily on comparing the company in question to other similar companies in the same market (Shaked et al., 2010). This method is somewhat limited in its applicability based on its reliance on a number of other companies in the same area of the market for an accurate valuation. Additionally, this generic type of model is not useful in decision making within the company but is strictly limited to total company valuation. It does, however, allow for some customization since the specific factors to be compared can be selected by the analysis team. Because of these facts, and the method’s ease of use from outside the company, this method

The valuation of a business is a critical element that depending on the accuracy of the valuation can be the difference between large positive returns or devastating losses for investors. The importance of valuation is why differing methods are always being debated and analyzed. The valuation of traditional companies with historical data and comparative industry examples can be a bit confusing for the average person but with practice they really are not overly complicated.

In order to survive in the competitive business environment organisations have to concentrate upon strengthening their consumer’s satisfaction strategies for ensuring consumer loyalty in the long run of business. In order to incorporate a long term customer retention strategy, organisations are in immediate need for assessing and unveiling the reasons and elements prior to the designing and implementation process of the consumer retention programmes. The importance of consumer loyalty could be

One of the simplest methods of calculating the CLV is historical CLV, which calculates the customers lifetime value based on the total amount the customer has already spent on the company. It should be noted that historical CLV at times does not take into account the time of association of the customer with the company. Old customers and new customers are all in the same bucket. Historical CLV is based on past data and hence at times can give misleading results.

The methods for valuing companies can be classified in six groups: MAIN VALUATION METHODS BALANCE INCOME MIXED CASH FLOW VALUE OPTIONS SHEET STATEMENT (GOODWILL) DISCOUNTING CREATION .Book value . Multiples Classic Equity cash flow EVA Black and .Adjusted .PER Union of Dividends Economic Scholes . Sales Free cash flow Investment value European profit .Liquidation .P/E EBITDA Accounting Capital cash flow Cash value option value .Other Experts APV added Expand .Substantial multiples Abbreviated CFROI the project value income Delay the others investment Alternative uses 2.1 Balance sheets – Based methods (shareholders’Equity) These methods seek to determine the company’s value by estimating the value of its assets. These are traditionally used methods that consider that a company’s value lies basically in its balance sheet. They determine the value from a static viewpoint, which, therefore, does not take into account the company’s possible future evolution or money’s temporary value. Neither do they take into account other factors that also affect the value such as: the industry’s current situation, human resources or organization problems, contracts, etc. that do not appear in the accounting statements. Some of these methods are the following: Book value, adjusted book value,

Chapter 7: Prospective Analysis: Valuation Theory and Concepts Palepu & Healy ROE, Equity Growth, Price-to-Book Ratio, and Price-Earnings Ratio Copyright (c) 2008 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter 7: Prospective Analysis: Valuation Theory and Concepts Palepu & Healy Shortcut Forms of Earnings-Based Valuation • Assumptions may be made to simplify abnormal earnings and equity value-to-book methods.

As stated earlier in the paper, under the amended revenue recognition standard, companies will undertake five steps in recognizing revenue for the goods and services they provide. The steps are as follows: Identify the contract(s) with a customer, Identify the performance obligations in the contract, Determine the transaction price, Allocate the transaction price to the performance obligations in the contract, and Recognize revenue when (or as) the entity satisfies a performance obligation.

Adjusted Present Value (APV) approach is an income-based valuation method employed as a variant to DCF tool, but does not use any WACC calculation. By using APV method, one can ascertain enterprise value by separating out as well as accounting for tax attributes of debts/borrowing and inherent incremental bankruptcy risk associated with additional debt. During valuation, the APV approach measures a firm’s enterprise value (EV) as the value of a company devoid of debt (‘unlevered enterprise), plus prevent value of tax savings from company’s debt. Specifically, APV valuation estimates unleveraged cost of equity most often using CAPM approach, expected cash flow of an

Grant, N., (ND).  Cash vs. Accrual Accounting Can Impact Business Valuation.  Retrieved on May 27, 2014

This report based on the study of “Customer Value Marketing” starts with introduction section. We have mentioned the contents of the study in objectives of the report section.