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Business Worth Valuation:


Investment in a new business needs the proper valuation. The Valuation helps us to make a realistic decision about the financial worth of the business. But the valuation need some techniques and analysis to get the actual worth of the running business. Everyone  who wants or planning to buy a running business he needs to follow the 5W’s strategy and business financial statement analysis techniques to make the realistic decision.  Here is the complete concept about the business actual worth or its financial valuation analysis.

5W’s Strategy:

                5W’s Strategy helps the buyer to make a realistic decision. In actual the 5W’s are the What, Where, When, Why and Who questions. These questions can be asked to the seller and can ask to the buyer himself to access their actual objective and goals for this buying and selling. These questions can be asked as follows:

1:            What:
·         What you are buying or what you are selling?
·         What is you actual purpose or objective for this activity?
·         What is the actual worth of the asset you are buying or selling?
·         What are the liabilities of the business and how you deal with them?
·         What does that venture actually owns?
2:            Where:
·         Where are you buying or selling the concerned asset or venture?
·         Where you are investing your capital?
3:            When:
·         When you are selling or buying that venture or asset?
·         Whenever the business starts paying you in terms of cash?
·         When the business start paying you?
4:            Why:
·         Why you are selling or buying it?
·         Why you investing in this specific business?
5:            Who:
·         Who is you buyer or seller?
·         Who actually push you in this activity?
·         Who is responsible for arbitrage in case of issues?

These questions gives are the qualitative based or the qualitative answer which helps us to understand the actual worth and value of a business. Because the answer of these questions are value able for both buyer and seller to know about the actual current value of the business.

Analysis of the financial statements:

                The analysis of the financial statements with the help of financial ratios helps us to know about the actual value of the business assets ,liabilities, earning revenues, and cash flows. The Income statement is the statement which tells us about the actual sales or revenues and the expenses which did by the business in specific period of times. Balance Sheet has the complete information about the actual worth of assets and liabilities. The Statement of cash flow give us the information about the total cash which a business used in its operating, financing and investing activities.
 Analysis of the financial statement always conduct with the help of horizontal and vertical analysis techniques and further the results will be extract able with financial ratios.

Cash Flows information:

                Before making decision about the purchase and buying a business you need to make a proper evaluation of the cash flows and check the trends and make the analysis over the basis of these information. That helps you to find out the peak  and worst periods for revenue earnings and evaluate the expenses of the business in different periods of time.

Revenue estimations:
                Be remember that the revenue of the business is not stable for every time.  The earning revenue always be different from according to the different seasonal trends. When we trying to estimates the revenue the discounted cash flow statement helps us to make the analysis.

Other techniques:

                The other techniques for the valuation of the business is Net Present Value, Asset Valuation, Sales and earnings multiple techniques. Formulas regarding  NPV and Asset Valuation techniques are as follows:

NPV:   -C0 + C1 / (1 + r) + C1 / (1 + r)2 + C1 / (1 + r)3 -  - - + CT / (1 + r)T
-C0:           Initial investment.    C:            Cash Flow.
 R:             Discounting rte.        T:           Time Period.

Asset Valuation:     Total Investment Value – (Depreciation + Any other liability)


 These are the some of the famous techniques which helps to evaluate the value of a business. But always prefer to check the profitability, efficiency, leverage, liquidity  and solvency ratios. 

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