One of the most important problems when buying a business is to determine the value of the company being sold. Naturally, the seller and the buyer will have absolutely different opinions about the value of this business. Therefore, in all cases, it is necessary to assess the value of the company’s business. Because in the U.S.A there is no own methodology for assessing the value of the business, then in any valuation of a business Western methods are used. However, in the context of the American business, it is often impossible to use them.
In the West, in the conditions of the developed stock market, the final cost of the size of the controlling stake is used to determine the approximate value of the company, which is determined by negotiations of the parties. For America, this approach is practically impossible, because the shares of only a few large companies are applied on the open stock market of the country. It is because of this that the evaluation of American business is built on other approaches and principles that were borrowed in the West. These include profitable, market, costly.
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Methods of valuation of a business
There are several methods for assessing the business.
The profitable approach to assessing the value of a business
The cost of a business is determined by the amount of expected income. The valuation of a business is based on the condition that the potential owner is not going to pay for the business a larger amount than the current value of the income for a certain period of interest. The appraiser takes the necessary information about the current state of the income from the financial statements of the firm. The appraiser in the course of further work includes the data of primary accounting reporting for the analysis and increase and analysis of certain balance items. Of course, we can also imply that the financial position of the firm is not always accurately reflected in the financial statements.
By this method, the valuation of the business is determined by comparing the recent sales of comparable firms. The market approach can ideally be applied to the valuation of individual assets (real estate, equipment, vehicles, etc.) And also for many industries where the volume of information on transactions increases, for example, the oil industry, telecommunications, and the value of this method is gradually increasing. In other cases, this method is used only as a tool for checking the results that were obtained by the income approach.
Using this method, the valuation of the business value is determined by the amount spent on the resources of its replacement or reproduction, taking into accounts the moral and physical deterioration. This approach is very effective when the buyer wants to compare the costs of acquiring a business with the costs of creating a similar analog of the enterprise. The disadvantage of this method is that carrying out a personal valuation of the value of intangible assets such as a trademark, customer base, and know-how is definitely a subjective and complex process. In addition to all of the above, this method gives a greater error than the age of the evaluated object.
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