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Business valuation

The main goal of any business is to generate profit.Profit or loss is calculated by substracting expenses from the capital invested. Any organization that is planning to buy or acquire business should try to buy with less and sale at a higher price in the future.There should be a strategic plan and sound valuation methods in place before making business dicisions.There are four main methods of valueing business. Assest based-valuation, payback rules,accounting rate of return,net present value and real option are the main ones.Asset-based or cost-based valuation methods estimate the value of a small business as the sume total of costs required to create another business fo equal economic value in the future.This method is very usefull for accurate business purchase and business allocation. When making decision for investiments, capital budjecting also plays a great role.Capital budgeting is chosen by many investors in terms of expected generation of cash flows,As mentioned above, decison related to investment involves cost-benefit analysis over a peroid of time. When dealing with cost-benefits,concepts such as present nalue,internal rate of return and other measures to assess the benefits of investiment against the cost of capital should be considered.Generally speaking,most companies define profit as the operating profit excluding the tax andcost of capital. The most frequently used method of valuation is the multiple technique.Example, sale-expenses= sustainable profit
sustainable profit-owner's salary is also a sustainable profit
Multiply sustainable profit by anay number between 1 &6.Let us figures here.
300 sustainable proft
150 business expenses
300-150=150 new sustain able value
150-100 (owner's salary)=50
50x3 =150 new sustainable value of the business.
Upon successfull completion of this calss you will be able to:
Define different type of valuation techniques
Apply the multiple valuation methods
calculate Net present value
participate in business valuation process
The Techniques you use to determine your business depends on many factors including complexity of the value of your assets,avaiablity of the comparative business sales data from the market,avaiability material resources and competition and the overall business environments.

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