A business valuation is a general process of determining the economic value of an asset, a company unit, or a whole business. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, taxation, and even divorce proceedings. In short, it provides an objective estimate of the value of the business.
The premise of valuation is that we can make reasonable estimates of value for most assets, and that the same fundamental principles determine the values of all types of assets, real as well as financial. It may include an analysis of the company’s management, its capital structure, its future earnings prospects, or the market value of its assets. Common approaches to business valuation include a review of financial statements, discounting cash flow models and similar company comparisons.
