Business valuation is the process of calculating the worth or value of a business concern. The market value of a business concern is required to be known in order at the time of sale or acquisition of a company. When a business is planning to follow an exit policy, in other words, a business owner is looking to sell off his business, he would need to know the brand valuation of his business.
Valuation of business is also done in order to raise capital or for tax purposes, finding out the selling price of a business, divorce litigation, allocation of purchase price for various assets, resolution of disputes arising from gift or estate taxes.
Some of the methods of business valuation are as follows:
Excess Earning Method
Capitalized Earning Method
Cash Flow Method
Cost to Create Method
Rule of Thumb Method
Business Valuation by M&S
Business Valuation based on Synergies
The fair market value of a property is the money value for which it can be sold by a potential seller to a potential buyer. A business valuation report consists of the regional, local and national business condition and the state of the industry within which the business in question is operational. The report also contains an elaborate description of the company in question. Through normalization of the financial statements of a company, a business valuation expert compares the company in question with the other companies in the same industry or geographic area.
The return on investment and the risk involved in it is estimated in the capitalization earning method. In this method, the goodwill that the business has in the market determines its value for the buyers. The excess earning method is very similar to the capitalization earning method. The only difference is that it deducts the returns on assets from other calculated earnings. The cash flow method determines the condition of a business in terms of cash flows. Business worth in terms of assets held is measured in the tangible method. Business valuation is thus very important in order to find out the exact value of a business.
Last Updated on : 29th July 2013