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The Art of Science and Valuation – Part 8

Selecting an approach for valuing a company

Before selecting an approach for the valuation of a company, the following factors must be considered:

3 step process to value any company.
3 step process to value any company.

Based on the operations of the company, the approaches can be classified as below:

  1. Investment and Property Companies – Asset/ Cost-Based Approach

  2. Manufacturing Company – Income-Based Approach, Market-Based Approach, and Asset-Based Approach.

  3. Knowledge-Based Company – Income-Based Approach, Market-Based Approach

  4. Brand-driven company – Income-based approach and Market-Based approach

  5. A company going in for liquidation – Asset-based approach.

If fixed assets are to be valued, three methods can be used, and they are:

  • The cost method – This method determines fixed assets based on the purchase price of the investment.

  • Market value method – In this case, the asset’s value is based on the market price or the projected price if sold on the open market.

  • Value-based method – Value-based method to evaluate an asset based on its ability to generate cash and measure the value by calculating the net present value of future cash flows.

Based on the intangible assets to be valued, the approaches and preferences can be classified as below:

Valuation methods for types of intangible assets

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