Business Valuation is the value of a business as a whole.
Sounds easy enough, but there are six ways to evaluate and come up with this number: Market Capitalization, Earnings Multiplier, Times Revenue Method, Discounted Cash Flow, Book Value, and Liquidation Value.
Market Capitalization is the easiest method...you just multiply the business' share price by the number of shares outstanding.
The Earnings Multiplier method is more long-term, and looks at investment opportunity. It adjusts the future profits against cash flow available to be invested at that time. This is done by adjusting for anticipated interest rates.
The Times Revenue Method multiples the revenue against a number that varies on the field the business is in. If you're in a really high-demand field, like tech, you would multiply your revenue by 5. If you're in a low-demand field or just starting out, you might multiply by just 1 or 2.
Discounted Cash Flow method is similar to Times Revenue, but this one adjusts for inflation too (so if inflation is rising, your projected value will be less).
Book Value can be calculated simply by look at the books. This is the number you find by subtracting the business liabilities from the assets (so after it pays all the bills, how much is this business worth?).
Lastly, Liquidation Value. This is how much the business would be worth if the business were liquidated today. If the owners decided to call it a day and head to a beach somewhere on early retirement...how much could they sell everything for?
Business owners can pick one of the methods to value their business, based on which best suits their purpose.
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Finance: What are normalized earnings?5 Views
Finance allah shmoop what are normalized earnings All right this
is norm or it's supposed to be We just couldn't
get the licensing rights from him So this is our
public domain version of norm from cheers Sorry And this's
normal that's a bell curve Yeah you're in the ebola
abatement business Each year the government spends a few bucks
on you Just keep you alive Is a business in
case Well you know a few hundred million peoples faces
start melting off like you know that scene in indiana
jones you know the good ones so your earnings are
usually here and here and here and here a buck
a buck twelve twenty three twenty four years I'm like
that But then one year after miss malaria's high school
biology class takes a field trip to study monkeys bats
and beetle crap in caves in central ghana Well your
business picks up So this year when the gove is
having to spend a fortune on ebola abatement you were
nine dollars and forty two cents a share And since
world awareness has suddenly shot up the most popular yahoo
search term index that thing well next year you'll still
learn five seventeen to share even though most the ebola
is pretty much gone now But then things quiet down
in life goes back to normal where your earnings are
you know normal and you could plot some kind of
line through them And if someone asked you what normalized
earnings are in your little ebola abatement company well you
could say that your normalized earnings are in about a
buck twenty Well fortunately making out with the nigerian fruit
bat is not normal so you probably don't have to 00:01:40.539 --> [endTime] worry about contracting ebola Ooh
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