The process of figuring out the current value of a business or an asset is known as valuation.
What are the Various Business Valuation Methods?
The Various methods for valuing an organization are as follows-
1.Market Capitalization Approach
The most straightforward approach or method of valuing a corporation is market capitalization. It is computed by dividing the share price by the total number of outstanding shares for the corporation.
According to the times revenue business valuation approach, a stream of revenues produced over a predetermined amount of time is multiplied by a factor that is dependent on the sector and overall state of the economy.
3.Earnings Multiplier Approach
Since a firm’s profits are a more dependable predictor of its financial success than sales revenue is, the earnings multiplier may be employed in place of the times revenue technique to obtain a more accurate image of the true value of a company. In comparison to cash flow that may be invested at the present interest rate over the same time period, the earnings multiplier adjusts future profits. In other words, it modifies the existing P/E ratio to reflect the interest rates in effect at the time.
4.Discounted Cash Flow (DCF) Approach
The earnings multiplier is comparable to the DCF approach of business valuation. Based on future cash flow forecasts that have been modified to reflect current market conditions, this approach determines the company’s current market value. The fundamental distinction between the profit multiplier approach and the discounted cash flow method is that the present value of the discounted cash flow method takes inflation into account.
5.Book Value Approach
This is the amount of equity held by shareholders as reported on a company’s balance sheet. The overall liabilities of a corporation are subtracted from its total assets to arrive at the book value.
6.Liquidation Value Approach
The net cash that a company would get today if its liabilities were settled and its assets were liquidated is known as the liquidation value.