ValuAdder Business Valuation Blog

Archive for the 'Company Valuation How-To’s' Category

Valuing a business? Then doing a market comparison against similar business sales should ring the bell. Indeed, both seasoned valuation pros and business people find the market approach to business valuation easy to grasp. Do your market comps hold water? But, as often in life, the devil is in the details. In fact, the International… Continue Reading

Are you creating a business valuation report that must comply with the venerable USPAP standard? Then you have a choice to make: should your report follow the Restricted or Appraisal report format? What is going on here? Restricted Report format – for client only The USPAP Standard 10 draws a distinction between the restricted and… Continue Reading

If cash is king in business, then an accurate picture of business earnings is king in business valuation. That’s because business value is all about the company’s earning power and risk. It goes without saying then, that a business with a history of superior earnings commands a higher value than its less profitable industry peers.… Continue Reading

Can a company value be established based on its gross receipts? In the language of business appraisal this question is addressed by the so-called market approach. Under this approach to valuation you are actually comparing your company to other similar businesses that have sold recently. You can do such comparison by reviewing the business selling… Continue Reading

Asset approach, also known as the cost approach, is one of the three major ways to value a business. Formally, this approach relies upon the economic principle of substitution: The business value equals the cost of recreating an enterprise of equal economic utility. The idea is that two businesses that generate the same economic benefits… Continue Reading

S corporations are so-called pass through entities. The company itself pays no income taxes. Instead, the shareholders pick up their share of business earnings and put them on their own tax returns. This is big savings compared to the double taxation common with the C corporations. Pre-tax or after-tax earnings for your business valuation? When… Continue Reading

If you are considering valuation of a company, private or public, the choice of valuation methods may seem bewildering at first. Business appraisers and economists recognize that there are three ways to value any company: Asset approach – which looks at the company’s assets and liabilities. Income approach – that establishes the company’s value based… Continue Reading

If you need to determine the value of goodwill of a business or professional practice, the capitalized excess earnings method is an excellent tool. This asset-based valuation method, known as the Treasury method, is especially well suited for goodwill estimation for all types of privately owned companies. Treasury method uses two rates of return One… Continue Reading

One of the central valuation methods under the income approach is the Discounted Cash Flow technique. To apply this method in your business valuation you would need to work up the following key inputs: Forecast of business cash flows Discount rate measuring the business risk Business long-term value, known as the terminal value While the… Continue Reading

Companies developing security software applications fall within the custom software industry sector. It is classified under SIC code 7371 and NAICS 541512. Information systems security concerns in companies large and small are a major reason this sector of the software industry has experienced rapid growth in recent years. In 2011, over 49,000 US based firms… Continue Reading

You may come across this situation when valuing a private business. The company owns substantial real estate assets in addition to business operations. By convention, you should appraise the business as though the premises were rented rather than owned. If the company owns its premises and does not pay rent to the landowners, you need… Continue Reading

When it comes to valuing a private business using market-based methods, one valuation multiple that stands out is the price to business revenues. Actually, there are two variants of this distinguished valuation tool: Price to gross revenue Price to net sales In fact, there are a number of industry sectors where the price to sales… Continue Reading