Business Valuation is the process of determining the economic value of a company. It has many real-life consequences such as tax purposes, litigation, and as a basis for business transactions such as acquiring or selling a company. It must be undertaken with both good faith and diligence while following generally accepted methods and principles.
Accurately valuing a business presents a unique set of challenges. Contact us to obtain a realistic estimate of the value of your business.
Our valuation reports are prepared in compliance with the “Statement of Standards for Valuation Services” (SSVS) of the American Institute of Certified Public Accountants and Uniform Standards of Professional Appraisal Practice (USPAP).
We use fair market value as a standard of value which is often used by private investment funds such as hedge funds and private equity funds to value illiquid investments. It assumes a hypothetical transaction between a willing buyer and a willing seller which both have the same knowledge of the facts.
Another important standard for business valuation is the premise of value which is the set of assumptions one must make in order to value a business. The most important and commonly used premise is going concern which assumes the company will be able to meet its immediate obligations and continue its business in the foreseeable future.
There are three main valuation approaches that our firm uses:
Asset-Based Approach Assumes that a company is worth its assets less its liabilities. It often involves restating the balance sheet items from historic cost less depreciation to fair market value. For revaluing hard assets, a business valuation professional can use appraisers or examine the prices of similar equipment at a similar age. Intangible assets there are widely accepted methods that can produce a reliable figure for their value.
Market-Based Approach It is based on inputs directly observable in the marketplace and includes the comparable transactions method and the market multiple approach. The comparable transactions method uses past transactions of similar companies to the valued one in order to determine its value. The market multiple approach relies on the use comparable companies that are publicly traded. That method assumes that the stock market provides a reliable real-time valuation of the companies that trade on it .
Income-Based Approach This valuation approach considers the rate of return on invested capital a prudent investor would require given the same level of risk as the valued company. That required rate of return is known as a discount rate or capitalization rate. The most common valuation methods that use the income-based approach are the discounted future cash flows method and capitalization of earnings method.
All business valuation methods require a great deal of assumptions and professional judgment to be applied. Therefore, it is important to hire an experienced and certified valuation professional to produce a reliable estimate of your company’s value.