A business can be appraised in a variety of ways. Several of these methods will be discussed further below.
- Market Valuation – The most basic approach to valuing a business. It is computed by multiplying the share price of the corporation by the total number of outstanding shares.
- Times Revenue Method – A stream of income collected over a specific time period is applied to a multiplier that is determined by the industry and economic climate.
- Earnings Multiplier – Modifies future income in relation to the cash flow that may be invested at the present interest rate during the same time period. In other words, it accounts for current interest rates in the current P/E ratio.
- Discounted Cash Flow (DCF) Method – This strategy is based on future cash flow forecasts that are updated to determine the company’s current market value.
- Book Value – A company’s book value is calculated by subtracting its total liabilities from its total assets
- Liquidation Value – The net cash that a company would receive if its assets were liquidated and liabilities were paid off today