Elements of Business Valuation

Overview of Elements of Business Valuation
The elements of business valuation are the important categories that have to be considered when the worth of a particular company is being determined. There are various elements of business valuation, all of which are equally important.

Economic Situations
The economic situations present in a particular area are supposed to be important when the business valuation of a particular company is being done. In fact this particular category is important enough to be given the first priority when compiling a business valuation report.

The category of economic conditions also includes information on the conditions of the particular industry in which the particular company operates. In some countries this information is provided by the important governing entities.
An example would be the Beige Book of the Federal Reserve Board of the United States of America.

Standardization of Monetary Statements
The standardization of economic declarations could be categorized into:
Discretionary Adjustments
Comparability Adjustments
Non-recurring Adjustments
Non-operating Adjustments

Approaches used in Business Valuation
There are several methods that are employed for the purpose of business valuation:
Income Approaches
Market Approaches
Asset Approaches

These approaches help the owners to determine the fair market value of their companies. Even though the basic idea of all these methods is identical there are some notional differences.

Income Approaches
The chief income approaches that are used in case of business valuation are as follows:
Weighed Average Cost of Capital
Discount or Capitalization Rates
Capital Asset Pricing Model
Built-Up Method

Market Approach
The particular market approach that is used the most extensively is the Guideline Public Company Method.

Important Premiums and Discounts of Business Valuation
The following premiums and discounts are considered to be important in the context of business valuation:
Discount for Lack of Marketability
Discount for Lack of Control
Important Studies of Business Valuation
In the context of business valuation the following studies are very important:
Restricted Stock Studies
Pre-IPO Studies
Option Pricing


More Information Related to Corporate Finance
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Capital Budgeting Investment Decision
Corporate Cash Flow Corporate Leasing
Corporate Financing Concepts Corporate Finance Management
Risk Analysis Corporate Finance Accounting
Corporate Finance Advisory Corporate Finance Consulting
Corporate Finance Statements Corporate Tax
Corporate Finance journal Online Corporate Financing

Last Updated on : 27th June 2013

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