Tuesday, October 3, 2017

Why It Is Necessary To Find Economic Value Of Your Business?



It has become necessary to define the economic value of the business or a company. Business evaluation is helpful as during business valuation, fair value is determined including sale value, partner ownership & divorce proceedings. A professional business valuator performs the process of business valuation for owners. In the market, various methods are available for business valuation such as review of financial statements, discounting cash flow models and much more. 

Three approaches are used to determine the value of a business: Income Approach, Asset Approach & Market-based approach.

Asset Approach: The business is viewed in the form of assets and liabilities that constructs the business value. One needs to find out which assets and liabilities to include in the valuation, choose a standard of measuring their value, and determine what each asset and liability is worth. By determining the value of assets and liabilities, the business value can be figured out.

Market Approach: It is based on the business worth in the real market place. The business price is evaluated through selling and buying price of similar competitive business in the market place. 

Income Approach: It is based on the expected economic benefits of the business and risk factors. It uses two ways:
·         Capitalization
·         Discounting

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