Business Valuation and Balance Sheet Valuation is two different aspects. Often they both are regarded as same but in reality both are different. Balance Sheet Valuation is the total value of the Assets less the liabilities that needs to be paid off. Business valuation is the present value of the business that can be achieved by selling it into the market. There are various methods to do business Valuation. Balance Sheet Valuation can be regarded as one of the methods of Business Valuation.Our experts at Courseworktutors are available 24*7 to provide Business Valuation Finance Assignment Help to Students.
Methods of Business Valuation and Analysis
Historical Cost Valuation Method: Historical Cost method value the business on the basis of Original Cost at which assets were purchased. This method measures the value of Assets and Liabilities on the basis of Balance Sheet Value. For Example: Company purchased an asset at $100000 in 1947 and the present value of Asset is $5000000. The Asset would be valued at $100000 following Historical Cost Method.
Current Cost Valuation Method: Current Cost Valuation method value the business on the basis of present cost at which assets can be disposed of in market. This method measures the value of Assets and Liabilities on the basis of Current Market Value. For Example: Company purchased an asset at $200000 in 1997 and the present value of Asset is $6000000. The Asset would be valued at $6000000 following Current Cost Valuation Method.
Asset Valuation Method: Asset Valuation Method can be done on two approaches i.e. going Concern approach or liquidation basis approach. In Case of Going Concern approach, business is valued at Net Value of assets less value of Liabilities that needs to be paid off. In case of Liquidation based approach, Business is valued as the Net cash that would be received after selling all the assets and paying all the liabilities.
Economic Valuation Method: This method is one of the best method for the purpose of doing business valuation. It values the business on the basis of business ability to produce wealth in future. In this approach, a valuator will be determining the expected cash flow to the business in upcoming year and then normalizes it by subtracting or adding unusual expenses and income. This cash flow is than multiplied with the Discounting future earnings for arriving at Net present value of Cash flows.
Purpose for doing Business Valuation
Business is valued for following purpose:
- For the Purpose of Merger and Acquisitions with another business
- Sale of Business
- Liquidation of the business
Grounds on which Business Valuation is done
Going Concern: Going Concern means that the business does not have any uncertainty to work in future. It will continue its normal operating functions. In case of Going Concern, Business Valuation is done on the market value of Assets.
Liquidation: Liquidation means the business is going to wind up in near future. It does not have future certainty. For the purpose of Liquidation, Business is valued at Net realizable value of Assets.
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