Valuating a Business

Consider these factors when putting a dollar value on a company.

There is no absolute value that can be put on a business, although value, when determined, must be translated into terms of money. A valuation is a means of justifying the premium in the asking price of a business. While net worth is a primary factor in valuing most privately owned businesses, one cannot rely entirely on balance sheet figures because they are based upon original cost and, therefore, do not purport to reflect the current replacement value of assets.

Another issue is goodwill. Goodwill may not be reflected on the balance sheet, but it may be material in amount, and the common practice of ignoring goodwill on the corporation's balance sheet might lead to a serious under evaluation of a company's assets.

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