Business Valuation

A Business Valuation is a financial analysis process that estimates the economic value of a business entity or company based on objective financial metrics and market conditions.

• AKA: Company Appraisal, Enterprise Valuation, Corporate Valuation, Financial Valuation.
• Context:
  • It can employ valuation methods such as income approach, market approach, or asset-based approach.
  • It can be used for mergers, acquisitions, tax reporting, litigation support, or shareholder disputes.
  • It can range from being a Simple Business Valuation (e.g., small business sale) to being a Complex Business Valuation (e.g., multinational corporation), depending on company size and industry complexity.
  • It can incorporate discounted cash flow analysis to project future earning potential.
  • It can be influenced by intangible assets like brand value or intellectual property.
  • ...
• Examples:
  • Small Business Valuations, such as:
    • Local Restaurant Valuation, using revenue multiples from comparable sales.
  • Tech Startup Valuations, such as:
    • AI Startup Pre-Seed Valuation, based on discounted cash flow and market potential.
  • Tax-Related Valuations, such as:
    • Estate Tax Business Appraisal, resolving IRS audit disputes over inherited business value.
  • ...
• Counter-Examples:
  • Book Value, derived from accounting records rather than market-driven assessments.
  • Sentimental Value, based on emotional attachment rather than financial metrics.
  • Forced Sale Value, determined under liquidation pressure instead of voluntary market conditions.
• See: Financial Statement Analysis, Market Comparables, Discounted Cash Flow, Intangible Asset Valuation, Mergers and Acquisitions, Tax Compliance, Economic Indicator.

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References

2025

• (Valutico, 2025) ⇒ Valutico. (2025). "Company Valuation Methods—Complete List and Guide".
  • QUOTE: There are three primary approaches under which most valuation methods sit, which include the income approach, market approach, and asset-based approach.

2024a

• (Shopify, 2024) ⇒ Shopify. (2024). "Business Valuation: Definition & How To Calculate Business Value".
  • QUOTE: A business valuation measures how much your business is worth. The process involves gathering and analyzing all your business information.

2024b

• (Investopedia, 2024) ⇒ Investopedia. (2024). "Business Valuation: 6 Methods for Valuing a Company".
  • QUOTE: The Discounted Cash Flow (DCF) method of business valuation is similar to the earnings multiplier. This method is based on projections of future cash flows which are adjusted to get the current market value of the company. The main difference between the discounted cash flow method and the profit multiplier method is that it considers inflation in calculating the present value.

    This is the value of shareholders' equity in a business as shown on the balance sheet statement. The book value is derived by subtracting the total liabilities of a company from its total assets.

2023

• (IRS, 2023) ⇒ Internal Revenue Service. (2023). "Valuing a Business for Estate and Gift Taxes". In: IRS Publications.
  • QUOTE: "Business Valuation for estate tax purposes requires independent appraisals using accepted methods like the income approach or market approach.

    Intangible assets, such as goodwill, must be quantified based on arm's length transactions or industry standards."

2022

• (Hayes et al., 2022) ⇒ Adam Hayes (author), David Kindness (Reviewer), and Timothy Li (Fact Checker). (2022). "Business Valuation: Definition and Methods". In: Investopedia.
  • QUOTE: "Business Valuation is critical in mergers to determine a fair price for target companies.

    Common valuation methods include comparable company analysis and precedent transactions, adjusted for market conditions and growth rates."

2020

• (Damodaran, 2020) ⇒ Aswath Damodaran. (2020). "Valuation: Measuring and Managing the Value of Companies". In: Damodaran Online.
  • QUOTE: "Discounted Cash Flow remains the cornerstone of intrinsic valuation, requiring robust revenue projections and risk-adjusted discount rates.

    Startups often use venture capital methods, valuing exit potential over current earnings."

2018

• (Wikipedia, 2018) ⇒ https://en.wikipedia.org/wiki/Business_valuation Retrieved:2018-5-6.
  • Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Valuation is used by financial market participants

    to determine the price they are willing to pay or receive to effect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest. In some cases, the court would appoint a forensic accountant as the joint expert doing the business valuation.

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