Business Valuation Methods

There are many kinds of methods out there when it comes to business valuation. Some methods will work for you and some may not. However, it’s still important to know about all these different types of methods.

If you’re looking for business valuation services New Jersey, then look no further. ThomasRoss Financial Group is here at your service.

That being said, let’s first understand why business valuation is important.

Why is Business Valuation Essential?

When in the world of corporate and business, one always needs to prepare for all different circumstances and scenarios as the market is extremely unpredictable. In case your company or business is being sold, liquidated, or bought, you need to be aware of the current market value and need to be able to provide the documents and statements that prove the actual worth of your business. Hence why, you need business valuation. If you need business valuation services New Jersey, then you’ve come to the right place. At ThomasRoss Financial Group, you can avail services from extremely qualified business and financial analysts.

A valuation professional usually uses the market analysis, cash flow model, and financial statements to determine the value of a company or a business. If you’re selling your company, then you need to ensure that you get your company valued as a strategic buyer will definitely want to see the worth of your company before they invest their money. However, stay prepared for the fact that they may wish to perform valuation themselves and compare the result with the value you provided them.

Now that you understand the importance of getting your company valued, let’s move on to understanding the 7 business valuation methods:

1. Market Value Business Valuation Method

The market value business valuation method is one of the most effective approaches to business valuation. With the help of this, one can most likely get a near accurate value of a company. In this approach, our business analysts compare your business to businesses that have already been sold and once belonged in your industry. Needless to say, this approach only works after our financial analysts collect enough market data of your competitors. However, if you choose to do this on your own, then be aware that this will prove to be extremely difficult. Hence why, it’s recommended that you hire professionals for the task of valuing your company, as it’s highly unlikely that you’d have a public database.

This valuation method is a great way to find out the actual worth and value of your company. However, it’s always good sense to try other options when dealing with anything. It never hurts to get a second opinion.

2. Asset-based Business Valuation Methods

Now, we’re going to discuss the asset-based business valuations methods. You probably gathered from the name, these methods revolve around the business’s total net asset value of your company, without the value of its total liabilities, as per your balance sheet.

There are two main ways through which one can approach the asset-based business valuation methods:

Going Concern

Organizations that plan to stay in business and not be liquidated, and have their assets sold off immediately, should opt for the going-concern approach for an asset-based business valuation. This method considers the assets of a company without the liabilities, or business’s current total equity.

Liquidation Value

Whereas, the liquidation value asset-based approach to valuation is opted for only when it’s assumed that the company no longer is in business and its assets are to be liquidated. If the company is finished and its assets are to be sold, only then is the net value determined. However, the important thing to note here is that the worth of the assets is most likely going to be quite low, since the liquidations value typically is a lot lesser than the current market.

3. ROI-based Business Valuation Method

The ROI-based business valuation method is very useful as it can be used in many ways to determine the profit value of your company. For example, you can calculate the capital equipment investment, performance of your pricing policy, inventory investment, etc.

Here, we have mentioned some other methods through which you ROI to determine the value of your business:

. One can calculate the rate of earnings on stock equity and proprietary equity by dividing the net income from the total capital plus reserves.

. One can devise the rate of earnings on invested capital by dividing the net income and income taxes from the proprietary fixed and equity liabilities.

. One can calculate the rate of earnings of total capital employed by dividing taxes, interest, net income, from the total liabilities.

4. Discounted Cash Flow (DCF)-Based Business Valuation Method

Discounted cash flow-based business valuation method is also called the income approach. It determines the worth of a company by considering its projected cash flow. The cash flow, discounted or not, needs to be adjusted its current value.

5. Capitalization of Earnings-Based Business Valuation Method

Capitalization of earnings-based business valuation method measures calculates a company’s future profitability by considering its expected value, annual ROI, cash flow.

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