Finance Formulas / July 19, 2018 / Kenley Hopper
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to effect a sale of a 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. In some cases, the court would appoint a forensic accountant as the joint expert doing the business valuation.
For example, if a company had $150,000 in revenues and $50,000 in explicit costs, its accounting profit would be $100,000. The same company also had $25,000 in implicit, or opportunity costs. Its economic profit would be $75,000.
We Also Think You’ll Like