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Business Valuation Merchant Cash Advance Methods

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Many types of business Merchant Cash Advance valuation methods are appropriate when estimating or defining a business Merchant Cash Advance value for certain kinds of business evaluations and Merchant Cash Advance appraisals. The reason for the evaluation determines Merchant Cash Advance which measure will be used. For Merchant Cash Advance example, if the purpose is to borrow money, asset values will be key because lenders will be interested Merchant Cash Advance in collateral. If the value is based on the selling price of Merchant Cash Advance the business, then what the business owns, what it earns, Merchant Cash Advance and what makes it unique will be important. The following Merchant Cash Advance is a list of many different types of business valuations that can Merchant Cash Advance be performed.

* Insurable value * Book value * Liquidation value * Fair market / stock market value * Replacement value * Reproduction value * Asset value * Discounted future earnings value * Capitalized earnings value * Goodwill value * Going concern value * Cost savings value * Expected return value * Conditional value * Market data value

This Merchant Cash Advance article discusses six of the more popular business valuation methods: 1) Value based on assets, 2) Value based on cash flow Merchant Cash Advance or net income, 3) Value based on the integrated Merchant Cash Advance method, 4) Value based on net present value of future Merchant Cash Advance earnings, 5) Value based on the market data approach, and 6) Value based on the replacement cost Merchant Cash Advance approach

1. Value Based on Assets Uses: Used most often as a minimum Merchant Cash Advance value because a business should be worth at least the value of its assets. Merchant Cash Advance Exceptions might occur when a company is losing money. Steps: Determine Merchant Cash Advance the market value of the assets being sold. If business is being sold, deduct the value of any liabilities being assumed Merchant Cash Advance by the buyer.

2. Value Based on Cash Flow or Merchant Cash Advance Net Income Uses: Used when a business has few assets, the Merchant Cash Advance cash flow being the important thing considered here. The value Merchant Cash Advance is based on the return on investment the cash flow represents.

Steps: Adjust the income statement Merchant Cash Advance to reflect the true expenses of the business (for example, subtract personal Merchant Cash Advance items being paid for by the business). Calculate Merchant Cash Advance the appropriate, adjusted type of income to be capitalized: cash flow, net income before Merchant Cash Advance or after taxes, etc.. Decide, based on risk and Merchant Cash Advance yields of other, "comparable" investments, the desired rate Merchant Cash Advance of return or the capitalization (cap) rate. Divide the income Merchant Cash Advance to be capitalized (example, cash flow) by the cap rate.

3. Value Based on the Integrated Method Uses: Used when a company has both assets and cash flow. This method Merchant Cash Advance accounts for the value of the assets and then capitalizes the cash flow, but only after reducing the cash flow by the cost of carrying Merchant Cash Advance the assets.

Steps: Determine the market value of Merchant Cash Advance the assets. Multiply the value of the assets by the interest Merchant Cash Advance rate the company pays to borrow money to get the cost of carrying the assets. Adjust the income statement to Merchant Cash Advance reflect the true expenses of the business. Calculate the appropriate, adjusted type of income to be capitalized: cash flow, net Merchant Cash Advance income before or after taxes, etc.. Subtract the cost of carrying the assets to get the excess earnings. Decide, Merchant Cash Advance based on risk and yields of other, "comparable" investments, the desired rate of return (the cap rate). Divide the excess Merchant Cash Advance earnings by the cap rate to get the value of the excess earnings. Add the value of Merchant Cash Advance the excess earnings to the value of the assets and subtract the value of any liabilities being assumed by the buyer Merchant Cash Advance if business is being purchased.

4. Value Based on Merchant Cash Advance Net Present Value of Future Earnings Uses: Used as a method to sell the value of a projected Merchant Cash Advance future stream of earnings at a discount. Merchant Cash Advance Used mainly with larger, well-documented companies for which the future Merchant Cash Advance is somewhat more predictable.

Steps: Adjust the profit-and-loss statement Merchant Cash Advance to reflect the true expenses of the business. Calculate the Merchant Cash Advance adjusted actual cash flow. Based on supportable plans, Merchant Cash Advance project financial statements for 5 years. Forecasting techniques could use Merchant Cash Advance moving averages, trending, percentage increases/decreases, or Merchant Cash Advance multiple regression. External factors such as industry outlook, technological developments, and government regulation Merchant Cash Advance should be considered. Determine cumulative cash flow for the 5 years and discount it to establish Merchant Cash Advance the net present value. Each year may be discounted separately to give a Merchant Cash Advance more precise value.

5. Value Based on the Market Data Merchant Cash Advance Approach Uses: Value of the business (or other property) is estimated from information on prices Merchant Cash Advance actually paid for other, similar, businesses or properties. This the most direct valuation approach and it is Merchant Cash Advance easily understood by laymen. However, it requires a reasonably Merchant Cash Advance active market, the necessity of making adjustment to actual selling prices in an attempt to compensate for Merchant Cash Advance differences and it is generally not applicable to estimating values of intangibles.

Steps: Identify other businesses or properties generally Merchant Cash Advance similar to the one being appraised, that have actually been sold. Determine Merchant Cash Advance the selling price, then compare each comparable sale with the property/business being appraised, and adjust actual selling price of each comparable property/business to Merchant Cash Advance compensate for the significant differences between it and the subject property/business. Use these adjusted selling prices Merchant Cash Advance of the comparable properties/businesses as a basis for estimating, by inference, the market value of the subject property/business. Merchant Cash Advance.

6. Value Based on the Replacement Cost Approach Uses: Value of the business is determined from the estimated Merchant Cash Advance cost of replacing (duplicating) the Merchant Cash Advance business asset by asset and liability by liability. Very accurate in valuing tangible assets and reflects Merchant Cash Advance actual economic value. Used with asset-heavy businesses such as hotels/motels and natural resources Merchant Cash Advance (mining) businesses. Does not take into account the earning power of the business Merchant Cash Advance which contributes to total value.

Steps: List all assets to be included in Merchant Cash Advance the valuation of the business. Omit any surplus or idle assets that do not contribute to the economic Merchant Cash Advance performance of the business. Also, list liabilities, if applicable to appraisal. Estimate the current cost to replace each asset Merchant Cash Advance with functionally equivalent substitute; also estimate current value of each liability to be included. Add the Merchant Cash Advance estimated costs to replace the individual assets, thus determining the total estimated cost of replacing all assets in aggregate. Subtract Merchant Cash Advance estimated current values of liabilities, if applicable. Add the values (liquidation value, wholesale market value, etc.) of any non-contributing assets Merchant Cash Advance omitted in the first step.

Reconciling the Value Estimates & Determining the Final Estimate of Value

* Compare the value of estimates resulting from the use of different approaches * Rank each by the relative degree of confidence * Use judgment * Test the final value estimate * Round the final value • No useful purpose is served by taking an average

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Posted on: August 9, 2011 03:00 AM

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