Company Valuation Formula for Business Analysis

company valuation formulaWhat is a company valuation formula?

A company valuation formula is a computational means of determining the value of a company. There are many different approaches to business valuations. No one way is absolutely perfect and the method that you use will depend to a certain extent what it is you are trying to achieve. Business valuation methods will fall into one of three categories:

  1. Market approach -The methods under the market approach typically use a number of valuation multiples. These multiples are ratios that relate the business market value to some measure of the company’s economic performance. The valuation multiple formulas are compared to those of similar businesses and offer a quick way to calculate your business value based on the actual selling prices of businesses that are similar, but not identical, to your business.
  2. Income approach – The income valuation methods provide a way to calculate value based on the company’s earnings prospects and risk. Income business valuation methods fall into two main types:
  • Capitalization methods – Capitalization formulas involve the division of business earnings by the capitalization rate.
  • Discounting methods – The discounting methods requires projecting a future stream of business income. The value of the business in present day dollars is then computed using the discounting valuation formulas.
  1. Asset approach – Asset valuation methods let you determine the company’s worth based on the values of its assets and liabilities. The main asset valuation methods are:
  • Capitalized Excess Earnings Method -The Capitalized Excess Earnings method uses a number of business valuation formulas to calculate business worth as a sum of its tangible assets and business goodwill.
  • Asset Accumulation Method – The valuation formulas for the asset accumulation method are essentially a set of adjustments made to the book values of the business assets and liabilities.

Fast company valuation formulas

  • Earnings multiplication – Multiply the annual income times the number of years you expect the business to operate to arrive at a selling price.
  • Comparable company analysis – A company is compared to a group of similar companies of the same size and in the same industry and a number of different ratios are used to arrive at a value through the comparison.
  • Quick valuation – For a fast sale, value can be determined by totaling all assets and subtracting the total of all liabilities to arrive at company net worth.

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Company Valuation Formula for Business Analysis
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