Business Valuation is a fundamental need for a client to understand the worth of their business and for their business appraisal. Valuation is a process, that implements a set of procedures to estimate the fair market value of a business. Depending on the circumstances, the business is valuated using different method.
Method of business valuation involves three different approaches -the Income Approach, the Asset Approach and the Market Approach
Income Approach method helps to determine the economic growth of a business. Two common method are used to calculate income valuation. They are Capitalizing Past Earning method and Discounted Future Earning method. Capitalizing past earning method, examine the past earning and calculate them by a capitalization factor which enables to understand the expected level of cash flow in the business. Discounted future earning method enables the business to understand it’s present valve and looks at forthcoming earning adjusted by the risk of achieving those earnings.
Asset Approach’s mainly focuses on the assets and liabilities of a business. It provides the business its perfect value by subtracting the liabilities from the assets, which assist the business to calculate their net income. A going concern asset-based approach and a liquidation asset based approach are the two standard method used for calculating the asset details.
Market Approach is used to understand the competition that is prevailing between the similar business in the market place. It makes the business to know their value in the market.
Whether it is a small scale, large scale or a corporate valuation, these three approaches are basically used to determine the value of a business.