How Is a Business Valuated?
Owning a successful business sometimes requires the financial evaluation of your company. This means calculations must be made to determine the business’s economic value. You might want to measure a business’s value to sell it, pay taxes or establish a partnership. If you own a business with your spouse, valuating your company is necessary for divorce purposes.
If you want a business valuation St Charles IL for any of the above purposes, this article details the basics of the process. Keep reading to learn more.
What Is Measured in a Business Valuation?
Valuating a business can involve a variety of different objective benchmarks. Professional evaluators might look at the capital structure of a company, its prospects for future revenue, the management or its assets.
To measure the value of a company, there are several formulas commonly used:
- The times revenue method takes the revenue of a given company and multiplies it by a factor dependent on the industry of the business.
- Market capitalization multiplies the share price of a business by the total shares in circulation. For example, a company with a share price of $100 with 1,000 distributed shares would have a market cap of $100,000.
- The earnings multiplier method is generally considered a more accurate method of determining a business’s value. The result is a price-to-earnings ratio that divides a company’s stock price by its past earnings of the previous year or more.
- The book value of a company equals the total assets of a company minus its total liabilities.
- The liquidation value of a company equals the value created every asset was liquidated, and all its liabilities paid off on the day of valuation.
There are many ways to evaluate a company that cannot be covered in one short article. If you are interested in assessing the financial worth of your business, contact a professional today and discuss the appropriate method for your needs.