ABSTRACT
This chapter finalizes every topic discussed so far by presenting the Present Value (PV) of a business through the process of valuation. The ultimate goal of creating and running a business is to increase the value of its owners’ wealth in the long run. This can be achieved only by increasing the market value of the business. The market value of a firm is different from its book value that is presented as total assets in the Balance Sheet. The market value of a firm is the perception of investors in the market regarding the company’s future growth potential. Valuation of a firm is the process estimating the amount of cash it can generate for its owners in the long run. For this reason, valuation has to start with forecasting the results of future operations that will generate cash for equity investors. This chapter will introduce an example of this process by applying all information developed up to this point and determine the true market value of R&B Grill.
