1. What Is Business Valuation?

Business valuation is the process of determining the economic value of a business or company. This basic balance sheet approach calculates value by subtracting liabilities from assets and adding goodwill to determine the net worth of a business.

2. How Does The Calculator Work?

The calculator uses the fundamental balance sheet valuation formula:

Where:

• \( Assets \) — Total value of all business assets (currency)
• \( Liabilities \) — Total value of all business debts and obligations (currency)
• \( Goodwill \) — Intangible assets like brand value, customer relationships, and reputation (currency)

Explanation: This formula represents the basic accounting equation for determining a company's net worth based on its balance sheet components.

3. Importance Of Business Valuation

Details: Business valuation is crucial for various purposes including mergers and acquisitions, selling a business, obtaining financing, estate planning, and strategic decision-making. It provides an objective assessment of what a business is truly worth.

4. Using The Calculator

Tips: Enter all values in the same currency unit. Assets include cash, inventory, equipment, and property. Liabilities include loans, accounts payable, and other debts. Goodwill represents intangible value beyond physical assets.

5. Frequently Asked Questions (FAQ)

Q1: What types of assets should be included?
A: Include all tangible assets (cash, equipment, inventory, property) and intangible assets (patents, trademarks) that have measurable value.

Q2: How is goodwill calculated?
A: Goodwill is typically calculated as the excess of purchase price over the fair market value of identifiable assets and liabilities in an acquisition.

Q3: Are there other valuation methods?
A: Yes, other common methods include income-based approaches (discounted cash flow) and market-based approaches (comparable company analysis).

Q4: When is this basic valuation method appropriate?
A: This method is most appropriate for asset-heavy businesses and provides a baseline valuation, but may not capture future earning potential.

Q5: What currency should I use?
A: Use your local currency or the currency relevant to your business operations. Ensure all inputs use the same currency for accurate results.