Whether it is a business acquisition, or a merger, or tax process or something else, business valuation becomes highly important on a number of times. However, it isn’t just about assessing the company’s worth in capital gains, but goes a long way. Thereby, there are several business valuation methods that are applied.

There are many ways to value a business. When you are looking for business valuation services in India, or elsewhere, you have to assess what methods are being adopted. Here’s a brief overview of what these methods are and how they work:

• Asset Approach

The asset approach is a valuation method that uses the net assets of a business. The net assets are the difference between the total assets and liabilities of a business; they represent what’s left over after all debts have been paid.

The asset approach is used to value a business when it is being sold or liquidated, for example, in bankruptcy proceedings. It can also be used to determine whether an existing company is worth more than its book value (the amount listed on its balance sheet).

• Market Approach

The market approach is one of the most common and reliable valuation methods. It’s based on the principle that similar businesses in similar industries should have similar values. To determine a company’s worth, the valuer estimates its value by comparing it to other companies selling in the same industry.

In particular, there are three approaches for using this method: industry averages, precedent transactions (also known as “comparables”) and discounted cash flow analysis.

• Income Approach

The income approach is also known as the discounted cash flow method, and it’s by far the most commonly used valuation method. It’s based on calculating a business’s future cash flows and then discounting these values to determine its value today. For example, if you could buy a stock for $10 with an expected after-tax return of 10% that would mean that $9 of each dollar is profit. To calculate a company’s value using this method, you would:

• Identify all sources of revenue
• Calculate how much revenue each source will generate in future years
• Determine how much money must be invested today to generate this amount of revenue in future years (it’s important not to include any money already invested)
• Calculate how much profit each future year will make (i.e., subtract out any costs)
• Discount these future profits back to present day value

• Cost Approach

The cost approach is one of the most common methods used to determine the value of a business. The cost approach calculates the present value of all of the assets owned by a company and deducts any liabilities from that amount, arriving at an estimate as to what it would cost you to replace those assets. This method can be used for businesses that have tangible assets like land, buildings, equipment and inventory; however, it cannot be applied to intangible things like goodwill or patents because they have no actual physical value in themselves.

This method is also known as book value method because it works backwards from an accounting document called “the balance sheet” which lists all assets on one side (the left side) and all liabilities plus capital on another side (the right side). The sum of these two sides equals shareholder equity—which represents how much money shareholders would get if they sold off everything today!

Business valuation methods are a collection of techniques used to determine the value of a business. There is no single, best method for valuing a company—each approach has its own strengths and drawbacks.

In general, it’s wise to use multiple valuation methods when determining your company’s worth. This will give you a more accurate picture of what buyers might be willing to pay for your firm.

Conclusion

We hope this article has given you a better understanding of the top business valuation methods. There are many more ways to value a company, but these are the most commonly used ones. If you’re looking for help with your business valuation needs, whether for MSME and SME acquisition or some other purpose, we can help rendering comprehensive support!