Business Valuation questions regularly appear in the objective test questions in ACCA FM.
There four categories of valuations:
This blog looks at the first of these.
An asset valuation is based upon this equation :
Net Assets = (NCA +CA) – (NCL + CL + Prefs Shares).
Then there are three basis of valuations:
1. Book Value
2. Net Releasable Value (NRV)
3. Replacement Cost (RC)
The question will indicate the method to use.
For example, if the seller is looking for the minimum value they would accept, then use the NRV.
However, if the buyer is looking to take over company and run the business as a going concern, the RC is the answer.