Business Value

Business Valuation

Market Value Business Valuation Method

This method researches the value of your business by comparing it to similar businesses that have sold. This only works for businesses that can access sufficient market data on their competitors.

Asset-based business valuation methods. These approaches consider your business’s total net asset value, minus the value of its total liabilities, according to your balance sheet.

a) Businesses that plan to continue (i.e., not be liquidated), and that none of its assets will be sold off immediately, should use the going-concern approach to an asset-based business valuation. This business valuation formula takes into account the business’s current total equity (or assets minus liabilities).

b) the liquidation value asset-based approach to business valuation is based on the assumption that the business is finished and its assets will be liquidated. The net amount is what would be realized if the business is terminated and its assets sold off. The value of its assets will likely be lower than usual, because liquidation value often amounts to be much less than fair market value.

ROI-based business valuation methods from a very practical standpoint. When you’re considering investing in something, what is your primary concern? Probably, it’s your return on investment, or ROI. If you buy stock in a company, you want a return.

Discounted Cash Flow (DCF): Also known as the income approach, the DCF method values a business based on its projected cash flow, adjusted (or discounted) to its present value.

Capitalization of Earnings: This method calculates a business’s future profitability based on its cash flow, annual ROI, and its expected value. The Capitalization of Earnings valuation method works best for stable businesses, as the formula assume that calculations for a single time period will continue.

Multiples of Earnings: Also known as the Times Revenue Method, this formula calculates a business’s maximum worth by assigning a multiplier to its current revenue. Multipliers vary according to industry, economic climate, and other factors.

Book Value: Don’t forget about this business valuation method, too, which we mentioned earlier. This business valuation formula calculates the value of the business’s equity (or total assets minus total liabilities), as per the business’s balance sheet.

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