Business Valuation is the process of determining the Fair value of a business organisation or business interests therein. Business Valuation enables one to know the value of any organisation as the same is required for transactional, strategic and regulatory requirements. Valuation of business organisations and interests may be performed for a variety of reasons such as public offerings, mergers acquisitions, ESOPs, share-based payments, valuation for the regulations of Insolvency and Bankruptcy code etc.
Key Methods of Business Valuation
This approach values the businesses on the basis of the Present Value of future earnings from the business. Generally, it is used for calculating the value of the businesses that are expected to continue operating for the foreseeable future It is a valuation approach that converts maintainable or future amounts (e.g., cash flows or income and expenses) to a single current (i.e., discounted or capitalised) amount. The fair value measurement is determined on the basis of the value indicated by current market expectations about those future amounts.
In this approach, the valuation of Business is calculated on the basis of the value of the underlying assets and liabilities appearing in the Balance Sheet of the Company. In this approach, the value of an enterprise is equal to the Fair market value of its assets less the Fair market value of its liabilities. This approach is generally used for valuing asset-intensive companies.
Market Method is a valuation approach that uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities, such as a business. In this method, the value of a business is determined by comparing the subject company or assets with its peers in the same industry of the same size and region.
At SPA we are specialists in preparing independent, unbiased business and professional practice valuations utilizing internationally accepted valuation methodologies. Some of the commonly used methods include:
- Market Multiple Method
- Comparable Companies Method
- Discounted Cash Flow Method
- Book Value Method
- Net Realisable Value Method