Business valuation methods are the procedures used to assess a business value working on economic principles. Some methods might differ in their application due to different business types, their mathematic calculations and regulations. Whatever the scenario is still every business value considers these main methods.
Three Main Business Valuation Methods:
Asset based business valuation method
Also known as cost based method, is used to estimate the business value tabulating the market values of business assets and liabilities. Plus accounts for contingent liabilities such as unresolved lawful action judgments and costs associated with supervisory agreement.
Income based Business valuation method
Income based business valuations as the name suggests is the kind wherein the factors determining revenue generation are kept in account. It determines business value depending upon its capability of produce and risks. This kind is basically used to determine Capitalization of earnings, Multiple of discretionary earnings and discounted cash flow.
Market based Business valuation Method
As the name says, market based business valuation method comprises of estimating the subject business value with the market selling prices of competitors in the market. The quality of this method is usually not that neat as sometimes important information tend to get skipped from the valuation holder but again it’s that significant guessing a business value in the market.
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