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How Would You Value a Firm That You Were Trying To Purchase?
Finance & Accounting
Pages 3 (753 words)
Running head: How would you value a firm that you were trying to purchase? What are the strengths and weaknesses of each of the valuation methods? Name: Institution: Date: Introduction Finding out the value of a particular firm is not an easy endeavor. However, this kind of undertaking can prove to be an essential component for purposes of effective management or in instances where an individual may was to purchase that firm.
Holton and Bates 2009, elucidates that there are a number of methods through which a potential purchaser of a particular firm may apply in an effort to realize the value of that firm. The methods may include: Free Cash Flow Methods, Asset-Based Methods, Option-Based Valuation method, and the method of using Comparables, These tools or methods of valuations would in return assist the potential purchaser of the firm to analyze and make an informed purchasing choice. Discussion To begin with, the asset-based method can be efficiently used be an intending purchaser to value a give firm. This method reveals the book value of a firm’s equity. In simpler terms, the asset based method shows the asset value of a firm or a company, less the debts of the firm. According to Strauss, 2011, a potential purchaser of a firm may find this method of valuation helpful since a company’s equity is all that a firm can be left with in an instance where it suddenly halt its selling its products or making money. This equity may be current assets, shareholders equity, and cash as tangible things, as well as brand name and management as intangible qualities. ...
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