Business Valuation

(1) Purpose and Statement

With the Financial Crisis and Economic Downturn, there are many questions raised for Business Valuation and Accounting. The market is signaling us that the world has gotten much riskier. Currently companies are relying more heavily on income Business Valuation approach and ignoring the market Business Valuation approach because they are seeing dislocation between the two methodologies. [1][2]Also, it is very difficult to know how much we can rely on historical information in this environment. There are several things we need to focus on after this crisis. Firstly, business appraisers and accountants should learn and use the new Business Valuation approach and Standard. Since intrinsic value is not fair value, business appraisers and accountants should know more approach such like intangible assets valuation approach, common size valuation approach using profit-loss analysis. Secondly, business appraisers and accountants should learn how to reconcile or synthesis different Business Valuation methods and make the reasonable decision. Thirdly, business appraisers and accountants should know how to do better forecasting and budget and should not limit to the empirical historical data [3].
(2) New Methods and Standards for Fair Value
Historically, there are mainly three kinds of Business Valuation approaches: Income approach, Market approach and Asset-Based approach. Within each of these approaches, there are various techniques for determining the value of a business using the definition of value appropriate for the appraisal assignment. Generally, the income approaches determine value by calculating the net present value of the benefit stream generated by the business (discounted cash flow); the asset-based approaches determine value by adding the sum of the parts of the business (net asset value); and the market approaches determine value by comparing the subject company to other companies in the same industry, of the same size, and/or... [continues]

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