Business valuation – for whom and why?

Complexity of the business valuation (also referred to as corporate valuation) resulted in a growing industry of professionals, consultants, and professors who are developing various techniques to measure the value and its creation.

Business valuations practitioners are divided into two segments:

  • Business valuation external group: Investors, consultants, analysts
  • Business valuation internal group: Managers

It is not surprising that due to the amount of data available to the internal group, the most used methods and techniques to derive the value estimate classify into the income approach. Besides income approach the external group also often uses methods and techniques classified into the market approach.

The purpose for business valuation partially depends on the group.

Common business valuation purposes for the internal group are:

  • Value based management
  • Business planning
  • Goodwill impairment
  • Reorganizations and bankruptcies
  • Recapitalizations
  • Damage litigations
  • Initial public offerings
  • Compensation schemes
  • Employee stock ownership plan

In contrast to these, the external group’s business valuation purpose relates to:

  • Options and stocks ownership
  • Exercising stock options or warrants
  • Tax (estate, gift, and income)
  • Giving stocks as a gift
  • Mergers and acquisitions
  • Shareholder oppression cases

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