Question

1. What is the goal of data analysis in the business valuation process?

2. Please discuss why data gathering is one of the most important steps in the business valuation process.

3. What is a business valuation and why are businesses valued?

4. Please provide an argument for the best valuation approach?

Answer 1

1. Data analysis is a process of inspecting, cleansing, transforming and modeling data with the goal of discovering useful information, informing conclusion and supporting decision making.The process of data analysis uses analytical and logical reasoning to gain information from the data. In the stage of the business valuation process, it performs a qualitative and quantitative analysis of the company. We may compare the performance of our company to that of other similar companies and/or to the industry in general. The goal of data analysis in the business valuation process is to understand what factors have impacted the company's past performance and what may influence its future.

2. Data gathering is one of the important steps in the business valuation process. This stage of the valuation process requires gathering information that is both company and industry specific.The first step would be to request and receive certain documents (financial and other) from the company. We would then meet with the client and discuss both the history and the current operations of the company..The questions we ask are typical questions that a potential buyer would ask about daily operations, marketing, competition, administration, financial performance(past and present), company expectations and industry. We would also tour the facility. After obtaining company information, we would then do indepedent research to assemble industry and market specific information.

3. Business valuation is a general process of determining the economic value of a whole business or company unit.Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, estabilishing partner ownership, taxation and even divorce proceedings.Owners will often turn to professional business evaluators for an objective estimate of the value of the business.

  The valuation of a business is the process of determining the current worth of a business, using objective measures and evaluating all aspects of the business. A business valuation might include an analysis of the company's management, its capital structure,its future earnings prospects or the market value of its assets.

The businesses are valued as the valuation determines its economic value. The goal is to determine the fair market value.Also it depends on many factors including industry sectors, valuation method and the economic conditions. A company needs to be valued if it is being bought, sold, or liquidated. Sometimes a company must provide a value of its assets or company as a whole to raise the debt also.

Thus, valuations are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting,taxable events to determine the proper tax liability.

4. Upon completion of the analysis part of the business valuation process, we are led to the next stage, the application of valuation approaches. Generally, there are basic approaches namely Income Approach, Market Approach and Asset or Cost Approach.However, the best valuation approach is the income approach as income or cash flow is generally the most important valuation factor for a going concern. It is best suited for solid cash generating businesses. Under this approach, we analyze the company's potential and assess the risk ( degree of uncertainity) associated with obtaining the earnings or cash flow.