Business Valuations

Business Valuations

Business Valuation Tools

Mercantile Mergers & Acquisitions believes that business valuation is a process applied by qualified professionals in cooperation with the prospective client to determine the fair market value of an owner’s interest in a business. Business valuation is used primarily for the purchase and sale of businesses. It is also often used to resolve issues that include, but are not limited to, estate and gift taxation disputes, partnership break-ups, and divorce litigation.

After reviewing economic conditions to provide context, the Expression of Value prepared by Mercantile Mergers & Acquisitions examines the subject company. We do this on-site and do not need to take away any information. This examination includes a general discussion of the history and description of the company. This examination also includes the company’s:

  • business lines, products and services,
  • management,
  • customers,
  • competitors,
  • employees, and
  • financial performance.

This examination sets a perspective for the multiple used for the valuation.

The financial statement analysis is the starting point. A business valuation professional applies a first technique called “normalization of income” of the subject company’s financial statements. Normalizing the company’s financial statements permits the valuation expert to compare the subject company to other businesses to the same company run by the “book”.

If required, valuation professionals also review the subject company’s financial ratios, such as the current, quick, and other liquidity ratios; collection ratios; and other measures of a company’s financial performance to include in the analysis.

The most common approach is a multiple of normalized EBITDA. There is also the asset-based approach and market approach.

Provided the client has a good grasp of his financial results, Mercantile Mergers & Acquisitions Corporation can complete a normal value expression in less than two hours at the client’s site.

See these pages:

Normalization of Income and the EBIT/EBITDA Worksheet