Four Common Business Valuation Methods
There are four commonly accepted methods for valuing a business. They are:
Book Value
Book value is the excess of assets over liabilities, which, when divided by the number of shares outstanding, results in a value per share of stock.
Book Value plus Value of Goodwill
This method measures what percentage of average net earnings are a result of goodwill. These excess earnings are then multiplied by a growth rate based on the number of years goodwill is expected to last. The resulting figure is then added to the book value.
Straight Capitalization
Average net earnings for a designated number of years, divided by a growth rate that represents the average rate of return for similar businesses.
Book Value plus Capitalization of Excess Earnings
This method combines book value, plus goodwill (based on a growth rate for similar businesses) and the capitalization of earnings, to arrive at a current valuation of the business.
Our Business Valuation Calculator can help you determine an estimated value of your business.
