BUSINESS EVALUATION : The application of business evaluation method inside small and medium size enterprises

With the globalization of the economy, the number of mergers and acquisitions has been increasing significantly, and therefore the need to evaluate companies has also been increasing. According to the information contained in the Zephyr database for 2008, there were 242 mergers and acquisitions in Portugal, the value of which amounted to approximately 11 billion euros. The assessment is a process that seeks to estimate the value of a company that serves as the basis for negotiation between the parties. In this process, the current plans and expectations for the company under assessment are considered, as well as the investment alternatives that are placed on the buyer and seller. The determination of the Company's value (the price of its assets, liabilities, and potential) will be considered fair as long as the parties are independent, knowledgeable, and willing to carry out the transaction. The importance of estimating the value of a company is not just related to possible transaction reasons. In fact, when we consider the process of determining the value of a company we are also thinking about a major analytical tool that can be transformed as an instrument of management, with the aim of creating value for the shareholder. In this context, the evaluation is an important instrument for evaluating the strategy and the respective operational plans to be carried out by the Company.In the Finance literature, it is possible to identify several methods of valuing companies, which have been developed over the years, in order to obtain a more precise value. According to Imam et al. (2008), the methods used to determine the fair value of one Company, can be used separately or in conjunction. For companies whose shares are listed on a regulated market, the share price is a primary element in determining fair value. As mentioned in International Accounting Standard 39, financial assets (eg shares) should be measured initially at fair value and the best evidence for that value is the existence of prices quoted in an active market. In the absence of quotations, literature in Finance shows that there are a multitude of evaluation methods (eg flows of box updated).