When valuing a company as a going concern, there are a number of valuation methods used by industry practitioners. Below are four of the most common business valuation methods applied in determining the value of a company or business:
Here are four common business valuation methods that can assist you in determining the value of your business.
Maintainable Earnings Valuation
The historical – and expected maintainable future - profitability of a business is used to determine its current value. A maintainable earnings valuation is especially useful for business valuation when profits may be expected to remain stable. Maintainable earnings are typically calculated from the financial performance from the past three or four years.
Relative Valuation
The relative valuation method quantifies a value based on arm’s length open market transactions of a number of closely comparable businesses.
Asset Valuation
A company’s assets include tangible and intangible items. For certain industries and types of business, the book or market value of those assets can be used to determine the company’s worth. For trading ventures, the Net Asset Value may reflect the lowest value a company is likely to achieve.
Discount Cash Flow Valuation
The Discount Cash Flow (DCF) method can be appropriate if profits are not expected to remain stable in the future. The DCF method takes a business’ future net cash flows and discounts them to present day values.
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