It is important for you as a business owner to determine your business value in the market whether you own a big or small company o. But first, do you know what is the market value? if you don’t know the meaning we will tell you what is it and how to determine your business market value in details.
First, What is Business Value
Market value is simply the determine for exchange-traded instruments like stocks and futures, and the price of an asset that would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization of a publicly-traded company and is obtained by multiplying the number of its outstanding shares by the current share price.
Second, How to Determine Business’s Market Value
Analyze your companies taxes for the last five years, and the dollar value of each item, create a column that calculates each line item of the income statement as a percentage of total revenue and a column that calculates each line item of the balance sheet as a percentage of total assets, that will help you.
Tally the Value of Assets
The value of the business’s balance sheet is at least a starting point for determining the business’s worth and Add up the value of everything the business owns, including all equipment and inventory.
Base it On Revenue
How much does the business generate in annual sales? Calculate that and determine, through a stockbroker or a business broker, how much a typical business in your industry might be worth for a certain level of sales. For example, it might typically be about two times sales.
Use Earnings Multiples
A more relevant measure is probably a multiple of the company’s earnings or the price-to-earnings (P/E) ratio. Estimate the earnings of the company for the next few years. If a typical P/E ratio is 15 and the projected earnings are $200,000 a year, the business would be worth $3 million.
Go Beyond Financial Formulas
Don’t just base your assessment of the business’s value on number crunching. Consider the value of your business based on its geographical location. In addition, consider its potential strategic value to a would-be acquirer if there are business synergies.
Employ valuation approaches to determine the fair market value of the business. Valuation experts commonly use more than one valuation approach when they perform their calculations. Use the income approach when the company has an established earnings history.
Use the market approach when sufficient market transactions exist for companies in a similar line of business to the company being valued. Use the cost approach when the company being valued has more assets than income, such as a real estate holding company.