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Different Types of Company Valuation Models

One of the most important steps that business owners should take is to have an idea of the value of their business. There are a variety of different valuation models that can be used to help determine your business’s worth however, many of these methods require different amounts of information based on the type of information you have at your disposal.

The market-based approach can be used, for instance, by looking at similar companies to get an idea of their worth and then using this number to predict the value of your business. This is a simple but effective technique. However it can be challenging in the absence of similar companies.

A multiples valuation model is a common method. It calculates the worth of your business by comparing it with similar companies in your field that have recently been bought or sold. While this is a helpful reference, it could become dated quickly since the market’s circumstances change regularly.

The asset-based method is a bottom-up analysis that utilizes your company’s physical assets, like inventories, equipment as well as patents and property to determine the value of each asset. This is a valuable method to determine the value of your assets that you can apply when your company has a large amount of assets but has no revenue.

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