Business valuation determines a company's economic worth by considering key factors such as financial performance, asset value, market conditions, and future growth potential.

There are several techniques that can be used to perform a business valuation, and each approach has its advantages and limitations. Here is a brief introduction of techniques of business valuation:

• Market Approach:

The Market Approach to valuation compares the target company to similar businesses.

 Guideline Public Company Method: Compares the target company to publicly traded peers using financial ratios (e.g., P/E ratio).

 Guideline Transaction Method: Analyzes the prices of similar companies recently sold in the market.

• Earnings Multiplier:

The earnings multiplier may be used to get a more accurate picture of the real value of a company because a company’s profits are a more reliable indicator of its financial success than sales revenue. The earnings multiplier adjusts future profits against cash flow that could be invested at the current interest rate over the same period. It adjusts the current P/E ratio to account for current interest rates.

• Discounted Cash Flow (DCF) Method:

The DCF method of business valuation is similar to the earnings multiplier. This method is based on projections of future cash flows which are adjusted to get the current market value of the company. The main difference between the discounted cash flow method and the profit multiplier method is that it considers inflation in calculating the present value.

• Book Value:

This is the value of shareholders’ equity in a business as shown on the balance sheet statement. The book value is derived by subtracting the total liabilities of a company from its total assets.

• Liquidation Value:

Liquidation value is the net cash that a business will receive if its assets are liquidated and its liabilities are paid off today. his approach is most commonly used for distressed businesses or those that are about to be sold.