BUS 5111 Discussion Assignment UNIT 5 PDF

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This is focused on discussion assignment for Unit 5 Week of the financial management course...

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Business valuation is an analysis of the economic value of a company. It is a way of determining the fair value of a business and maybe done for reasons such as buying an interest in the company etc. (Hayes, 2019). The three main valuation methods that are used for evaluating organizations or companies include the discounted cash flow (DCF) analysis, the comparable company analysis, and the precedent transactions (CFI Education Inc., 2020). The above methods are commonly used in investment banking equity research, private equity, corporate development, mergers & acquisition, and advantage buyouts. According to Downs (2019), amongst the various ways for a business to determine its worth, the income approach is the most common way in most cases. The discounted cash flow method provides an estimated outcome of the forecast of cash flow and is the method used by most companies. The precedent transaction analysis’ main purpose on the other hand is mainly for a market approach. The last analytical approach, the comparable analysis, involves analyzing the current value of a business which is done by looking at the trading multiples (Susan, 2020). This method gives the user the ability to an observable value for their business. Other methods include the prior transaction method which involves the examination of the previous historical transactions in securities for the business, the guideline public method which involves identifying a comparable company and obtaining its stock price for the listed securities, and the guidelines transaction method which involves using prior-year transactions (like mergers, acquisitions, divestitures, etc.) for evaluation (Jan, 2019). I believe all the three main methods, the discounted cash flow analysis, comparable company analysis, and the precedent transactions are needed and do supplement each other in determining the success of a company. Even though all three methods connect in various combinations depending on the company’s vision, I believe the discounted cash flow method is the best method despite requiring complex economic skills as it has the best outcome when it comes to business forecasts. The other approaches, however, are needed for more success.

References CFI Education Inc. (2020). Retrieved from What are the Main Valuation Methods?: https://corporatefinanceinstitute.com/resources/knowledge/valuation/valuation-methods/ Downs, B. (2019). Retrieved from What is the Purpose of a Business Valuation?: https://www.bbgbroker.com/business-valuation-purpose/ Hayes, A. (2019) What Is Business Valuation? Retrieved from https://www.investopedia.com/terms/b/business-valuation.asp Jan, O. (2019). Market Approach to Business valuation. Retrieved from https://xplaind.com/437797/market-approach Susan, W. (2020). The balance. Retrieved from 3 Business Valuation Methods: https://www.thebalance.com/business-valuation-methods-2948478...