1. Business Valuation
Business valuation is a process and a set of
procedures used to estimate the economic
value of an owner’s interest in 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.
(c) Dynamic Valuations 2009

2. Purpose of Business Valuation
Buying/Selling a business
Bank/Equity and other financing
Business Strategic Planning
Litigation and Taxation
Partnership/Shareholder Agreement
(c) Dynamic Valuations 2009

3. Elements of Business Valuation
Economic conditions
Financial Analysis
Normalization of financial statements
Income, Asset and Market Approaches
(c) Dynamic Valuations 2009

4. Income Approach to Business Valuation
The income approaches determine fair market
value by multiplying the benefit stream
generated by the subject or target company
times a discount or capitalization rate. The
discount or capitalization rate converts the
stream of benefits into present value.
(c) Dynamic Valuations 2009

5. Asset Approach to Business Valuation
The asset approach to business valuation is
based on the principle of substitution: no
rational investor will pay more for the business
assets than the cost of procuring assets of
similar economic utility. Most assets are
reported on the books of the subject company
at their acquisition value, net of depreciation
where applicable. These values must be
adjusted to fair market value wherever
possible.
(c) Dynamic Valuations 2009

6. Market Approach to Business Valuation
In certain industries, when businesses change
hand on a regular basis, industry-wide rules of
thumb are sometimes used to value a company.
Examples of such industries include
recruitment agencies, accountancy firms, etc.
Buyers would not pay more for the business,
and the sellers will not accept less, than the
price of a comparable business enterprise.
(c) Dynamic Valuations 2009