Business valuation is termed as a process to determine the value of a company. There are several methods used for business valuation but the essence is the theoretical approach should match with the potential market values.
In today's competitive business environment, the companies prefer to do business globally. Due to globalization, there are lot of mergers and acquisitions, corporate restructurings etc., started happening both in the United States and other parts of the world. Thus, business valuation has become an important tool to validate the true assets value of a company.
Business valuation methods are not only required for accounting purposes but also serving the needs of angel investors, venture capitalists.
This method is based on the possibility of liquidation of the property, plant, and equipment assets of a company to pay off the companys liabilities. The net remaining amount would accrue to the equity of the company. Assets valuation based on the liquidity will not yield better results.
This method uses the future cash flow of the company that includes the risk factor involved, generally measured by the beta value. It is considered as a vital tool for cash generation of a business.
This method will determine the market value by means of multiplying the share price of the company by the number of issued shares. This valuation will take into account the perception of the investors in relation to the companys performance and management capabilities to provide a return on their investments.
The value of the business could be evaluated by multiplying P/E value by the net income. The price-earnings ratio is the quote of a company's share in the stock market divided by it earnings per share.
In today's highly competitive global business environment, any business valuation methods should not yield wrong results that lead the companies either to overpay or lose opportunities in the real market place. Thus, the companies looking for new investments, acquisition or expanding business, the management people should understand the ground reality of business valuation analysis to give a proper guidance and consulting to create assets for an organization.