Business valuation can be a complex and rather time-consuming task but nonetheless, the volume of business valuations being performed each year is increasing rather significantly. A major cause of this growth in volume is the increasing use of mergers and acquisitions as vehicles for corporate growth. Business valuations are frequently used in setting the price for a business that is being bought or sold. Another reason for the growth in the volume of business valuations has been their increasing use in non standard business transactions. For example, business valuations are now being used by financial institutions to determine the amount of credit that should be extended to a company, and also by courts in determining settlement amounts in litigation cases and by investors in evaluating the performance of company management. Lastly, business valuations are often required under a variety of accounting and tax regulations that are not directly related to mergers and acquisitions.

In most cases, a business valuation is completed by an appraiser or by a CPA. The appraiser uses experience and knowledge of the current market to evaluate the income, assets and market of the company being evaluated. There are a number of standard formulas for establishing the value of each of these components in a company. These methods are the capitalization of earnings, economic income, discounted cash flow and discounted future income. Typically, asset valuation is performed either by a standard or adjusted book method. Market valuation is performed by comparing the market value of the assets of public companies that compare to the company that is being valued. An estimate can then be placed on the market valuation of a business of all shares of the company were to be acquired.