Justification is the process of establishing the value of a particular
trade or business. To determine the value of a
particular business or stock, you must consider many
factors including, but not limited to, the following:
The Overall Market Conditions
Judging the overall market conditions is an important part of
justifying the value of a company. You must consider the
state of the economy in general, which includes unemployment
rates, interest rates, and the overall state of the financial
system. In general, the better the overall market conditions,
the higher the value of the company. This makes sense because
when the economy is doing well, people have more money to
spend and companies can charge more for their products and
services.
What Is The Industry Of The Company?
Understanding the industry of the company is vital in
justifying the value of a company. You must consider the
state of the industry in general, including average
product life cycles, industry growth rates, and the overall
strength of the market for that type of business. When
determining the value of a company, the more
the “general wisdom” in the market, the more customers
there are, and the more competitive the industry, the
higher the value of the company. This makes sense because all
of these factors contribute to customer demand, and thus the
health of the company.
What Is The Company’s Growth Potential?
Judging the growth potential of a company is important in
justifying the value of a company. You must consider the
company’s ability to grow and the rate of growth
the company is experiencing. The higher the growth
potential and the faster the company is growing, the higher
the value of the company. This makes sense because there are
more opportunities for greater growth and more rewards
for becoming a successful business.
What Is The Company’s Market Share?
Market share is another important consideration in
justifying the value of a company. You must consider the
amount of the market that the company is commanding
and whether or not the company is expanding into new
areas. The higher the market share and the faster that the
company is gaining ground, the higher the value of the
company. This makes sense because there are more people
buying the company’s products and services than any
other similar business available in the marketplace.
How Does The Company’s Product Or Service Differ From
Competitors’?
Differentiating the product or service from competitors is
another important consideration in justifying the
value of a company. You must consider whether or not there
is a compelling reason for the consumer to choose your
product or service over those of your competitors. When
evaluating the difference between the products or services of
a company and its competitors, you must consider the
following:
- Cost
- Quality
- Reliability
- Durability
- Aesthetics
- Additional Features (e.g., mobile
apps, special financing) - Branding (e.g.,
trademarks, logos, etc.) - Availability
- Support (e.g.,
phones, web hosting, etc.) - Customer
Orientation (e.g., helpful, attentive, accomodating)
These are just a few of the many factors that you must consider when
evaluating the value of a company. For help figuring out a value for
your company, contact us today!