Business Valuation

CHAPTER 5Approaches and Methods Overview

PYRAMID STEP 5 Consider appropriate approaches and methods.

A clear understanding of the valuation approaches and underlying methods is necessary at this stage of the valuation process for the analyst to determine what needs to be done to properly apply those methods. Without an understanding of the fundamentals underlying the asset, income, and market approaches, the analyst will lack direction on developing appropriate benefit streams, risk rates, market transactions, peer comparables, and other factors.

Learning Objectives

By the end of this chapter, readers should be able to:

• Articulate the fundamental concepts underlying the asset, income, and market approaches.
• Distinguish among the inputs needed for proper application of the asset, income, and market approaches and explain each method’s unique applications, advantages, and limitations in various business valuation contexts.
• Efficiently determine when an asset, income, or market approach is most relevant for determining the value of a specific business based on the attributes of each approach, given the facts and circumstances of the assignment.
• Explain how the subject company’s life cycle affects the valuation process.
• Ascertain when it is appropriate to use multiple methods and how to apply multiple valuation methods.

Overview

As discussed in Chapter 1, there are many ...