The Essentials of Business Valuation

Valuing a business is complex. Investors may purchase a minority or controlling interest in a business, either of which can convey a wide variety of rights and restrictions on those rights. The interest could be securities in a publicly traded company for which there is an active market and indications of value readily available, or interests in a closely held business—C corporation, S corporation, limited liability company, or partnership—for which little or no market may exist. Investors usually buy companies to acquire the anticipated future returns of the enterprise. They must estimate the risk involved in their investment and the future returns they expect to receive. This chapter reviews the theory and process of business valuation and emphasizes key points to consider yielding defendable estimates of value.