Business Valuation

Business owners, buyers, investors, lenders and courts all need to know what businesses are worth. A business valuation brings together information about the company's finances, assets, market position, risks and prospects to arrive at an estimate.

Common methods include discounted cash flow analysis, which values the business based on the cash it is expected to generate; comparable company analysis, which uses valuation multiples of similar listed companies; precedent transaction analysis, which looks at prices paid for similar businesses; and asset-based methods, which focus on the value of the company's assets minus its liabilities.

For example, a family selling its manufacturing business might receive a valuation of 12 million to 15 million, based on forecast cash flows and the prices recently paid for similar manufacturers.

The purpose of the valuation matters. A buyer may pay more than a business is worth to other investors if it expects cost savings from combining the companies. A valuation for a forced sale may be lower than one assuming the business continues normally. Valuations are therefore always tied to a specific context and set of assumptions.