Business Valuation

Business, Legal & Accounting Glossary

Definition: Business Valuation



Full Definition of Business Valuation


Business Valuation is the process of determining the economic value of a business or company. Business valuation can be used to determine the fair value of a business for a variety of reasons,  including sale value, establishing partner ownership and divorce proceedings.

There are a variety of business valuation techniques used for determining a fair price for a business.  These include:

  • Asset-based approaches – this technique values the business based on asset minus liability estimation.  This can be done with the business as a going concern where the balance sheet is used for the basis of estimate, or a liquidation approach which estimates the net cash proceeds from liquidating the business.
  • Earning value approaches – this technique involves estimating expected cash flow from past earnings records, then multiplying the cash flow by a capitalization factor.  The capitalization factor reflects what rate of return would be expected by a reasonable purchaser.
  • Discounted future earnings – this technique involves the use of predicted future earnings (rather than past earnings) divided by a capitalization factor.

There is a truism in the venture capital industry that “the value of a company is only what someone is willing to pay for it.” In other words, in the end, the market – and your ability to attract investors and negotiate with them – will determine the value or selling price.


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Definition Sources


Definitions for Business Valuation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 23rd March, 2020 | 2 Views.