Business Valuation Professionals consider three different valuation approaches:

Asset Approach

The asset business valuation approach is based on the principle of substitution that a prudent buyer will not pay more for a property than the cost of acquiring a substitute property of equivalent utility. All assets and liabilities are adjusted to reflect the business as a going concern entity or the company in liquidation, depending on the premise of value appropriate for the valuation.

Market Approach

The market business valuation approach is also based on the principle of substitution. The business valuation professional identifies business entities that have transacted as a way to compare the subject business. Sold businesses in comparison to the subject is a way to calculate value of an equally desirable company from an ownership or investment standpoint. The methods most commonly used for the market approach are the Guideline Public Company Method, Guideline Company Transaction Method, Multiple of Discretionary Earnings Method, and Gross Revenue Multiple Method.

Income Approach

The income business valuation approach is based on the idea of valuing the present value of future benefits. This approach estimates business value by considering the future income accruing over a period of time. The methods most commonly used in business valuation professionals include the Capitalization of Earning Method and the Discounted Cash Flow Method.

It is the business valuation professional’s responsibility to select the method that most accurately represents the current value of the subject company.