- Market Value Valuation MethodThe market value business valuation formula is the most subjective approach to measuring a business’s worth. It determines the value of your business by comparing it to similar businesses that have sold.
- Asset-Based Valuation Method
We might use an asset-based business valuation method to determine what your company is worth. As the name suggests, this type of approach considers your business’s total net asset value, minus the value of its total liabilities, according to your balance sheet.
- ROI-Based Valuation Method
An ROI-based business valuation method evaluates the value of your company based on your company’s profit and what kind of return on investment (ROI) an investor could potentially receive for buying into your business.
- Discounted Cash Flow (DCF) Valuation Method
The discounted cash flow valuation method, also known as the income approach, for example, values a business based on its projected cash flow, adjusted (or discounted) to its present value.
- Capitalization of Earnings Valuation Method
Next, the capitalization of earnings valuation method calculates a business’s future profitability based on its cash flow, annual ROI, and expected value.
Business Valuation Purposes
- Getting a business loan
- attracting investors and valuing your own net worth
- Business acquisitions, mergers or joint venture arrangements
- Sale of businesses or planning a future business sale
- Litigation (such as negligence, partner disputes, etc.)
- Existing or new shareholders, minority interests, and/or lenders
- Stakeholder incentivization and/or other management needs
- Family succession planning and/or inheritance situations
What is Business Valuation
Business valuation is a process and a set of procedures used to estimate the economic value of a business. Valuation is used to determine the price people are willing to pay or receive to effect a sale of a business.