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The best business evaluation software should have evaluation tools that allow the user to conduct a performance assessment of a company using quantitative and qualitative analysis. Quantitative analysis involves the use of numerical figures and ratios, while qualitative analysis is more subjective and based on certain traits or features of the business being appraised. Business evaluation software should also have the ability to calculate the intrinsic value of a company based on facts and figures provided.
Quantitative analysis provides insight into the financial health of a company. Business evaluation software should have the ability to download the income statements, balance sheets, and cash flow statements of a company. Income statements contain information regarding the revenue, expenses, and net profit of the company. Quality business evaluation software should reveal when the company's revenue greatly exceeds expenses or when profits are higher than revenue because those are indications of a strong company. It is also important for business evaluation software to be able to provide calculations related to profit, gross margins, and net income.
Business evaluation software should allow the user to see a list of what a company owns and its debts in order to determine how much owner's equity is in the company. Such information is found on the balance sheet. Items like cash, accounts receivable, and inventory should be tracked by the business evaluation software. If cash is growing over time the business is doing well; decreasing cash shows poor investing or indicates that mounting debt is depleting cash reserves. The software should automatically calculate the quick ratio to provide the user with insight into the ability of a company to pay its debts; a ratio above one is good.
When conducting a business appraisal, individuals review the cash flow statement to determine how much actual cash flows in and out of a company. Organizations that yield excess cash have the ability to reduce debt loads, pay dividends to owners, and expand operations. Business evaluation software should provide a calculation of free cash flow, the figure that shows how much extra cash a company is producing.
Qualitative analysis is based on the personal observations and experiences of the user. Business evaluation software should provide a space for the user to write about the nature of the business's industry and any competitive advantages it may have. The user may also need the space to evaluate potential industry and market growth. Individuals may also conduct analysis regarding the quality of the company's management.
Valuation ratios, such as discounted cash flow, are complex calculations used to determine the worth of a business or its appeal as an investment opportunity. The best business evaluation software should have the ability to generate future revenue, profit, or free cash flow projections and discount them to a present value. If the discounted value is higher than the current value placed on the business or cost of investing in the business, the company is under-priced.