Exam (elaborations)
BUS 5111 Unit 5 Discussion Assignment (100% correct)
- Course
- Institution
A guide to assignment on business valuation and specific focus on book value method with example.
[Show more]
Seller
Follow
MasterAddis
Reviews received
Content preview
Briefly explain business valuation and its purpose (also referred to as company valuation).Select a valuation method from the introduction in the Learning Guide and describe why
you might use that method to value a business.
Business valuation is a process of determining the face value or economic value of a company
(Hayes, 2021). The process could include an analysis of the firm's capital structure, cash flows,
or prospective market value. We can also define business valuation as the process of determining
the present worth of a business by evaluating all financial aspects of a business (Corporate
Finance Institute, 2022). Investors conduct a business evaluation for several reasons including
sale value, taxation, and forming partnership agreements (Hayes, 2021).
Commonly, professional business evaluators conduct this analysis and come up with a value
based on objective criteria. Several methods are utilized in business evaluation. These
approaches or methods include the Asset-based approach, Income/Earning income approach, and
Market approach. Other than these are other approaches that are used by evaluators. From these
approaches, one of the most common methods is the book value method.
A book value method is an accounting approach that calculates the business's value using
financial statements (S. Seth, 2021). Book value of a firm would roughly be equal to the amount
that's left if all the assets are sold to pay for all the debts and obligations. Consequently, we can
say that a book value of a firm is the value an investor would get if the firm is liquidated. We can
calculate the book value of a company by deducting the total liabilities from the total assets (S.
Seth, 2021).
Book value of a company = Total assets − Total liabilities
This method is simple to calculate and understand, hence it is used commonly. Additionally, if
the company kept a proper record of its financial statements then we can get a relatively reliable
result. We can divide the book value we got from above by the number of outstanding shares to
get the book value per share (S. Seth, 2021). This will help us make a comparison on per-share,
and make an informed decision.
However, this method has its limitations that investors need to be aware of. One of the major
issues is that financial figures aren't reported monthly. Hence, an investor may need to see the
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller MasterAddis. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
78637 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now