This paper introduce business valuation in practical sense.This article will provide insight in business valuation approaches.

1. PUREVALUE FINANCIAL & RESEARCH SOLUTIONS PVT. LTD.
2014
Business Valuation
New vision, innovative research
PureValue Research Team
W W W . P V A L U E R E S E A R C H . C O M

2. Business Valuation
Business Valuation - The deal making value
Business valuation is the art and science of understanding the value and worth of
any business. Generally the promoters , investors as well as the financial
institutions wants to understand the value of business in order to take strategic
decisions like sale of business , sale of certain stake of business, merger of
business etc.
There are three approaches to Valuation - The asset approach, the income
approach & the market approach.
The Asset Approach or the balance sheet approach is extremely useful for
company with large asset base like real estate companies with land bank and may
not be very useful for service industry companies like tech companies or e -
commerce companies like Amazon, Flipkart, ebay etc. This approach is based on
historical data and does not take care of the future.
The Income Approach is useful for companies having a promising business story
and having a good potential. This approach takes care of the future potential of
business. Under this method discounted cash flow is the most popular method
which takes care of the future cash flow of business. However this is a very
sensitive model as it is based on various assumptions like the discount rate i.e.
cost of equity or weighted average cost of capital through which the cash flow is
to be discounted, the terminal growth rate and the systematic risk i.e beta factor
of listed peers. A small change in any of these factors can drastically change the

3. Business Valuation
value of the business. However while applying the DCF methodology the first and
the foremost step is to validate the projections with the help of peer companies.
The Market Approach
The market approach in case of unlisted companies means applying the peer
listed companies multiple to our company and valuing our unlisted company on
the basis of market sentiment like PE Multiple, EBITDA Multiple, Mcap/ sales
multiple etc.
At times it confuses us which method need to be applied while undertaking any
valuation, however the best way is apply all the methods which suits your
business model at first hand and then apply relevant weight based on the
importance of the method to our business model. Applying different method is
useful as its helps in making a sanity check.
One thing is of prime importance that there are different methods present to
value a business; however the experience of the valuer play a most significant role
as his experience can guide the client in deriving a fair value of business after
looking into various aspect of business.
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PureValue Research Team
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