A business valuation involves following a set of procedures or techniques used to determine the business value. There are a number of acceptable methods:
Market-based business valuation methods whichestimates the subject business value by comparison to the recent selling prices of similar businesses.
Asset-based business valuation methodswhich are sometimes referred to as the cost-based methods. Such procedures estimate the value of a business as the sum total of the costs required to create another business of equal economic utility. An asset based business valuation method is the Capitalized Excess Earnings approach, also known as the Treasury Method. This method lets you determine the value of business goodwill.
Income-based business valuation method which determines the business value based on its income producing capacity and risk. The main business valuation techniques used by these methods are capitalization and discounting. Business risk is captured in the form of discount and capitalization rates.
Using multiple methods in business appraisals which uses a number of business valuation methods.