Different Types of Company Valuation Models

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Getting a clear picture of your company’s worth is among the most crucial steps for business owners to take. There are many different valuation models you can apply to determine the value of your business. However each model requires different amount of information, based on what data is available.

The market-based approach includes, for instance, comparing similar companies to gain an idea of their value and then using this value to predict the value of your company. Although this is a straightforward and efficient method, it can be difficult when there aren’t enough comparable companies on the market.

A multiples valuation model is another popular method. It calculates the worth of your business by comparing it with similar companies in your field that have recently been purchased or sold. This is a useful benchmark however it could become obsolete as market conditions change.

The asset-based value method is a bottom-up approach that analyzes your company’s physical assets, such as equipment, inventories, patents, goodwill and property in order to determine the value of each asset. This is a useful valuation technique that you can use when your company has more assets than profit.