Overview of Business Valuation
The extent of involvement of a particular businessman in his or her company could be measured by a process known as business valuation. Business valuation could be defined as a group of various systems as well.
Uses of Business Valuation
Business valuation could be used for the following purposes:
Solving business problems related to the areas of law and business
Make an assessment of the market price of a business
- Distribute the business purchase price amidst the business assets
- Solve problems in business that are connected with issues like estate, divorce litigation and gift taxation
Fair Market Value
The fair market value is an important concept in the context of business valuation. The fair market valuation is normally carried out in terms of cash. It could be explained as the price at which a certain business property would be traded.
Important Factors of Business Valuation
The following factors are given importance when determining the value of a particular business enterprise:
- Premiums and Discounts
- Economic Situations
- Income, Market and Asset Approaches
- Standardization of Monetary Statements
The following factors could also be considered as important in the context of market valuation:
- Discount for Lack of Control
- Option Pricing
- Discount for Lack of Marketability
- Pre-IPO Studies
- Restricted Stock Studies
The economic conditions that are present at the precise time of valuation are of utmost importance when determining the worth of any company. The various situations that are present in the particular industry where the company is functioning are important as well.
Income Approaches
The following income approaches are adopted when determining the value of a particular business:
- Weighed Average Cost of Capital
- Discount or Capitalization Rates
- Capital Asset Pricing Model
- Built-Up Method
Market Approaches
The following market approach is used when the value of a business enterprise is determined:
- Guideline Public Company Method
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