Different Types of Company Valuation Models
A clear understanding of your company’s worth is among the most important steps for business owners to take. There are a variety of valuation models that you can use to determine the value of your business. However, each model requires a different amount of information based on the available data.
For instance, the market-based valuation method is based on looking at similar companies to get a sense of what they are valued at, and then using that figure to predict your own company’s worth. Although this is a straightforward and effective technique but it can be challenging when there aren’t enough comparable companies in the marketplace.
Another common approach is to employ a multiples valuation model that calculates your company’s value by comparing it to similar companies in the industry that have been sold or acquired recently. This is a good benchmark however, it can become outdated when market conditions change.
The asset-based method is a bottom-up analysis that makes use of your company’s physical assets like equipment, inventories patents, property, and equipment to determine its value. This is a valuable method to calculate the value of assets that you could apply when your company has a lot of assets but has no revenue.