Monday, October 02, 2006

What I Do - Business Valuation

It's tough to explain to some what I exactly do for work. I work in the area of Business Valuation. Business Valuation is a broad category but the general idea encompasses estimating a market value for a financial asset or liability. Asset valuations include stocks, options, business enterprise values, or intangible asset valuations including trademarks, patents, customer relationships, etc.

The Purpose of Valuations
  • Uses: Investment analysis, capital budgeting, merger and aquisition transactions, financial reporting, tax related events and litigation
  • Since the values of things fluctuate over time, valuations become necessary. Some things are simple to value, for example, a piece of machinery. Intangible assets (brand names, patents, etc) become more difficult - how do you put a price on something you cannot see or touch?
There are multiple ways to do an analysis and each case is always uniquely different. Market methods and income methods are the traditional approaches. Many assumptions go into valuing complex assets like intangibles. Assumptions can be made as long as you have adequate support for what you are assuming. Support can be past transactions in the market, government rates, or historical performance of the company, projected into the future, etc. It sounds complicated but it isn't really that difficult. Once you learn something it sticks with you for a long time and as you work repetitively on similar projects, it becomes very easy, as with anything in life.


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