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Business Valuation

Business valuation is an important work to give a clear picture of which price will match stock’s value, or even to know the accurate value of enterprise’s capital.

The valuation process is accomplished through various methods. But the most methods that ever used are,

· Asset approach.

· Market approach.

· Income approach.

Consulting Bureau for Studies and Financial Analyzing uses those methods to extract the appropriate valuation for businesses.

Asset Approach

This approach relies upon the economic principle of substitution to estimate the costs of re-creating a business of equal economic utility, i.e. a business that can produce the same returns for its owners as the subject business.

The business valuation methods under the Asset Approach include:

· Asset accumulation method.

· Capitalized excess earnings method.

 

Market Approach

This Approach uses the economic principle of competitors which estimates the value of a business comparing to similar businesses whose value has been recently established by the market.

The business valuation methods under the Market Approach are:

· Comparative private company transaction method.

· Comparative publicly traded company transaction method.

 

Income Approach

This approach uses the economic expectation to determine the value of a business. To do so, one estimates the future returns the business owners can expect to receive from the subject business. These returns are then matched against the risk associated with receiving them fully and on time.

The returns are estimated as either a single value or a stream of income expected to be received by the business owners in the future. The risk is then quantified by means of the so-called capitalization or discount rates.

The methods which rely upon a single measure of business earnings are referred to as direct capitalization methods. Those methods that utilize a stream of income are known as the discounting methods. The discounting methods account for the time value of money directly and determine the value of the business enterprise as the present value of the projected income stream.

The methods under the Income Approach include:

· Discounted cash flow method.

· Multiple of discretionary earnings method.

· Capitalization of earnings method.

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