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.
Related or Semi-related Video
![Finance: What are revenue multiples?](https://media1.shmoop.com/video/thumbnails/COURSE.FINANCE.438_770x433.jpg)
Finance: What are revenue multiples?5 Views
Finance allah shmoop what is the elektronik communication network or
e c n All right it's the computerized and wired
version of this for a small fee traders can plug
into a network to trade stocks you know think about
it like facebook for stock traders on ly with less
political ranting and fewer photographs of babies and freshly cooked
meat Generally well generally speaking easy ends are quote off
market unquote that is they aren't really directly part of
an established trading system like the new york stock exchange
or nasdaq or one of the other blessed exchanges They
connect market makers directly to third parties allowing them to
trade to their heart's content There aren't a lot of
actual physical hands at work here Most of the limit
orders air matched elektronik lee the network charges it's the
transaction is processed and life moves on So think about
it like it's two a m on a saturday and
joe who likes to trade in his underwear don't ask
us why is just dying to sell one hundred shares
a coke to betty who likes to trade while headbanging
teo led zep and you know likes to trade with
ahmed who's Saving money for an air conditioner Yeah well
no sweat So this is perfect for anyone who wants
to become active in the trading of stocks but hates
any kind of physical human interaction Don't worry The robot
rebellion will soon be upon us and cnn's will rule 00:01:32.659 --> [endTime] the roost Yeah
Up Next
What is Discounted Cash Flow? Discounted Cash Flow is a model that’s used to determine the value of an investment or company. It’s pretty compl...
What is Earnings Quality? Earnings quality refers to a company’s tangible earnings from sales or reduced expenses as a result of management decis...
Normalized earnings are, more or less, the average of what you typically earn. Picture a bell curve. Zoom in on the middle of it. There you go.