In Important Issues of Business Valuations For Attorneys and Their Clients finance expert witness Richard Teichner, CPA, CVA, CDFAJ, writes:
Certain Terms Applying to Valuations
To aid the attorney and client during the process of establishing a business value, the following is a summary of some of the terms that generally apply to valuations:
Approach – there are three general approaches for establishing values, of which, depending on the circumstances, one of them or a weighted average of more than one of them can be used:
Income Approach, whereby past or future income or cash flowstreams are applied to a capitalization rate or discount rate.
Market Approach, whereby values or sales of comparable businesses, or interests in comparable businesses, are the bases for value for the subject business.
Asset Approach (or asset-based approach, adjusted net asset approach, and other variations on the term), whereby a value for each balance sheet item is determined (including intangibles which may or may not appear on the balance sheet) and then are added together (assets less liabilities).