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Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing to pay or receive to effect a sale of the business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest.[1]
Specialized business valuation credentials include the Chartered Business Valuator (CBV) offered by the CBV Institute, ASA and CEIV from the American Society of Appraisers, plus the CVA and CBA by the National Association of Certified Valuators and Analysts; these professionals may be known as business valuators.
In some cases, the court would appoint a forensic accountant as the joint-expert doing the business valuation. Here, attorneys should always be prepared to have their expert's report withstand the scrutiny of cross-examination and criticism.[2]
Business valuation takes a different perspective as compared to stock valuation,
[3]
which is about calculating theoretical values of listed companies and their stocks, for the purposes of share trading and investment management.
This distinction derives mainly from the use of the results: stock investors intend to profit from price movement, whereas a business owner is focused on the enterprise as a total, going concern.
A second distinction is re corporate finance: when two corporates are involved, the valuation and transaction is within the realm of "mergers and acquisitions", and is managed by an investment bank, whereas in other contexts, the valuation and subsequent transactions are generally handled by a business valuator and business broker respectively.
^Kwok, Benny K. B. (2008). Forensic Accountancy (2nd ed.). LexisNexis. ISBN 978-962-8972-76-0.
^Gottlieb, CPA/ABV/CFF, ASA, CVA, CBA, MST, Mark S. (2011). "Withstand the Scrutiny of Cross-Examination and Criticism of your Business Valuation Expert Report". BusinessValuationNewYork.com. Retrieved 2020-07-13.{{cite web}}: CS1 maint: multiple names: authors list (link)
^See, e.g., these discussions:
"Business Valuation vs. Stock Market Valuation";
"Valuation Factors: The Top 9 Things To Consider"
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