Different Types of Company Valuation Models
One of the most important basics actions that business owners can take is to obtain an accurate idea of their company’s worth. There are a variety of valuation models you can apply to determine the value of your business. However each model needs a different amount of information based on the available data.
The market-based approach is, for instance, looking at similar companies to get an idea of their worth and then using this number to predict the value of your company. Although this is a straightforward and effective method however, it can be challenging when there aren’t enough comparable businesses in the marketplace.
Another option is to utilize a multiples valuation model which determines the value of your business by comparing it with similar companies in the industry that have been sold or acquired recently. While this is a helpful reference, it could become dated quickly since the market’s conditions change frequently.
The asset-based method is a bottom up analysis that makes use of your company’s physical assets such as inventories, equipment patents, property and other assets to determine its value. This is an effective method to calculate the value of assets that you could use when your company has a lot of assets, but not a profit.
