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

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CHAPTER 6

Financial Subworld of Market Value

The world of market value is the value of a business interest in the marketplace. The owner who says her business is worth a certain price is generally referring to this world. These valuations determine possible open market selling prices for a business interest.

Every company has at least three market values at the same time. This is why market value, much like all of business valuation, is a range concept. Each market value level, called a subworld, represents the most likely selling price based on the most likely investor type. The subworlds are asset, financial, and synergy. The asset subworld reflects what the company is worth if the most likely selling price is based on net asset value. That is because the most likely buyer bases the purchase on the company's assets, not on its earnings stream. The financial subworld reflects what an individual or nonstrategic buyer would pay for the business. With either buyer type, the appraisal relies on the company's financial statements as the main source of information. The synergy subworld is the market value of the company when benefits from a possible acquisition are considered.

Market valuation focuses on an owner's wish to derive the highest value obtainable in the marketplace. The financial subworld reflects the market reality that the highest value for many businesses is found by selling to an individual or nonstrategic buyer. Financial intermediaries are the authorities governing ...

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