ABSTRACT
Valuing a business can be approached in many different ways. In general, there are
two main methodologies in business valuation – earning-based and asset-based.
Earning-based methodology focuses on the earning ability and cash flows of an
organization as reflected by its future stream of profits. The prime variable used in this
methodology is the future cash flows of the organization in question. In the long run,
an organization’s net cash flow equates to its net profit figure (after tax) which in turn
is dependent upon the two main components, sales revenue and expenditure, which
have been considered in Chapters 3 and 4 respectively. The second methodology is
asset based, which focuses on an organization’s financial strengths and operating
capabilities. Based on the reported value and quality of an organization’s assets, the
prime variable used in asset-based valuation methodology is an organization’s net
assets (total assets less total liabilities).
