Follow Us:

The Basics of Business Valuation

Home The Basics of Business Valuation

Quick Contact

    Need Help?

    Please Feel Free To Contact Us. We Will Get Back To You With 1-2 Business Days.

    [email protected]
    +65 9730 4250

    Business Valuation

    We Turn Ideas Into Works of Art

    Basics of Business Valuation: Business valuation is a process of knowing the value (economic) of a business or company. The value of the business determined can be a unit or whole company. Knowing the value of a business is done for many reasons, such as divorce proceedings, taxation, sale value, succession, partner ownership, and more.

    Business owners call on a professional business evaluator’s expertise to run valuation processes to know the accurate value of their businesses.

    The Basic of Business Valuation

    Business Valuation Approaches

    Some of the standard business valuation approaches used include:


    The First Method is Discounted Cash Flow

    Discounted cash flow is initialized as DCF and is a valuation method used to estimate the value of a company depending on its anticipated future cash flows. DCF analysis tries to find the value of a current investment or business based on projections of how much funds it can generate in the future.

    This applies to investors’ decisions in firms or securities like acquiring a business or purchasing a stock. It requires complex adjustments and calculations for arriving at the equity value of the company.


    The Second Type is Comparable Company Multiples

    Comparable Company Analysis denoted as CCA, is a process for evaluating the value of a firm using the metrics of other firms of similar size in the same industry. It operates under the assumption that similar companies will have identical valuation multiples, such as EV/EBITDA, P/E, P/B, etc.

    Analysts use various available statistics for the assessed businesses and calculate the valuation multiples to compare them. Creating a comparable company analysis is hectic as it requires lots of detailed searches, research, and adjustments as per the target company to estimate the value of the company.


    The Third Method is Precedent Transaction Multiples

    Precedent transaction multiples refer to the company’s valuation by analyzing the M&A transactions concluded in previous years related to the target company business or sectors. This requires a detailed analysis of the transactions and various propriety adjustments before arriving at the value of the company.


    The Fourth Method is Asset Valuation Method

    The tangible and intangible things that belong to your business stated on the company’s balance sheet are your assets. Some assets are vehicles, land, equipment, cash, intellectual property, etc. The value of a company’s assets is assessed in two circumstances. It can be evaluated as the liquidation or going concerned. Valuation of the business is derived by valuing assets and adjustment of the liabilities in the business.

    Valuation is beneficial when reporting tax. It may require a valuation for the purchase of shares, sale, gifting of shares, and other tax-related events of a business that will be taxed based on the company’s value.

    Finding out a company’s fair value is considered an art and science. Different formal models can be used for valuation, but selecting the right one after checking the condition on the ground will give a desirable result.

    Always have the professionals handle your business valuation. This will save you from selling your business below the fair price or buying it higher than reasonable. In order not to lose, employ the services of a professional.

    Final Verdict

    Business valuation is used to know the economic value of a whole company or company’s unit. It is a means to determine a company’s fair value for many reasons. Some of the reasons are taxation, sale value, succession, divorce proceedings, retirement plans, and more.

    There are different approaches a professional business evaluator can use to know the fair value of your business. So, instead of doing it yourself, get the services of an experienced evaluator.

    error: Content is protected !!