O'Reilly logo

Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 4

Market Value

The world of market value describes the value of a business interest in the marketplace. Value is normally expressed as an equity enterprise value. The owner who says his business is worth $X is generally referring to the world of market value. By seeking a market value for his business, an owner is motivated to find the open market value, probably envisioning a transfer.

“Market value” is defined as:

The highest purchase price available in the marketplace for selected assets or stock of the company.

This definition assumes the assets or stock of the company are valued on a debt-free basis, which means all interest-bearing debt must be deducted from the derived market equity values. Most market valuations are also done on a cash-free basis, meaning the seller keeps the excess operating cash and marketable securities in the company at the closing.

An owner whose motive is to derive the highest value obtainable in the marketplace focuses the appraisal process on the world of market value. Adapting a concept from commercial real estate appraisal, the market value focuses on determining the highest and best value for a business. No other value world has this goal or requires the combination of methods unique to this value world.

Rather than Internal Revenue Service (IRS) regulations, court precedents, or insurance company rules, financial intermediaries govern the market value. As with most private business valuation, market value requires a point-in-time expression ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required