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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