Business Valuation is a process of determining the economic worth of the company based on its valuation model & external factors. It reflects the company’s past performance as well as the expected future performance.
It is used by financial market participants to determine the price they are willing to buy or sell in the market.
Business Valuation depends on various factors such as:
The purpose of a valuation
- Merger & Acquisitions
- Sale of Business
The stages of Valuation
- Valuing the company
- Identifying areas that need improvement
- Risk mitigation
- Measure & analyzing past financials can help to project company growth & future financials.
- Analysis of derived future financial results to arrive at key decisions.
Accurate business valuation requires meticulous execution of a solid approach.
Depending upon the nature of operations, markets they serve, and assets they own, different valuation approaches may be applied, which are listed below:
- Income Approach- This approach is based on the idea of valuing the present value of a business’s future benefits.
- Market Approach- It is based on the idea of valuing the company by comparing it to the market value of similar publicly listed companies
- Asset Approach – It focuses on a company’s net asset value. It is based on the principle of substitution that a prudent buyer will not pay more for a property than the cost of acquiring a substitute property of an equivalent utility.