Different Types of Company Valuation Models
A clear understanding of the value of your company is one of the most critical steps for business owners to consider. There are many different types of valuation models that can be used to determine your business’s worth However, a lot of these methods require varying quantities of information based on the type of information you have to work with.
For instance, the market-based valuation method involves looking at comparable companies to get a sense of what they are valued at, and then using that number to predict your own company’s worth. While this is a simple and effective method, it can be difficult when there aren’t enough comparable companies on the market.
Another common approach is to use a multiples valuation model, which calculates your company’s worth by comparing it to similar companies in the industry that have been acquired or sold recently. This can be a useful reference, but it can quickly become obsolete when market conditions change.
The asset-based method is a bottom-up analysis that utilizes your company’s physical assets such as inventories, equipment as well as patents and property to determine their value. This is an effective method to determine the value of your assets that you can use when your company has a lot of assets but no profits.