About Valuation

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Business Valuation Overview

Valuation is a process to establish a value for an entire company or partial interest in a closely held business or professional practice, taking into account both quantitative and qualitative tangible and intangible factors associated with the specific business / interest being valued.

Business valuation is a complex process and it involves a multitude of factors ranging from financial matters to historical perspectives. The valuation is performed in a variety of contexts and for a variety of purposes. A valuation is not an exact science. The value is subjective term and can have different connotation. Valuation involves use of professional judgment, knowledge of business, analysis of facts, interpretations and use of different methods and procedures, which may result into different value in each given situation. This implies the business value must be measured and defined by a "Standard of Value" that is relevant, meaningful and reliable.

Following is the Hierarchy of Standards of Valuation.

The most widely recognized and accepted standard of value is the Fair Market Value. It is the standard used in all Federal tax matters. It is defined in Revenue ruling 59-60 as: the price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the seller is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts".