Question

Why are there so many different techniques for determining the worth of a firm? In any given situation, is there one “right answer” for a company’s value? What effects do your answers to these questions have on the entrepreneur making an acquisition?

Answer 1

There so many different techniques for determining the worth of a firm because depending upon the characteristics of a firm and the firm type such as LLP, proprietorship, limited, partnership etc and also based on whether the firm is involved into manufacturing, trading or providing services etc, the kind of technique is chosen to determine the worth of a firm. Different techniques are there for different types of firms based on their ownership concern, type of activitiy, employee strength, turnover, investment in plant and machinery etc. There is no "right answer” for a company’s value in any given situation because the methods of determination of worth vary and hence the results also differ from each other and are based on the method of evaluation as well as position of firm at present scenario which might change in future and also vary based on the technique employed for determination of worth of a firm. The effects of these answers on the entrepreneur making an acquisition are varying since an entrepreneur cannot rely on a particular technique for determining the worth of firm while acquiring it. He/she will have to look for firm's value, intangible assets, image in the eyes of public etc as well while making the acquisition and just not rely on any particular technique of valuation of firm since different techniques can give different results.