Definitions of Value

Value can defined in a number of ways. In business valuation work, a number of different definitions of value are used. The following are most common.

Book Value is not a standard of value. It is an accounting concept used to compute the difference between a company's total assets and total liabilities. Intangible assets, such as the value of a company's customer base, are usually not included in book value.

Fair Market Value is defined as the price at which a business would change hands between a willing buyer and a willing seller when the former is under no compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. It is generally also understood that the parties have the ability to buy or to sell and the transaction will be in cash or cash equivalents. This value is the most widely recognized and accepted value related to business valuations.

Fair Value is the standard of value usually used in court cases involving dissenting shareholders. It is usually defined by statute.

Liquidation Value is the expected amount that could be obtained from the piecemeal sale of business assets on either an orderly or forced liquidation basis.

Investment Value is the value to a specific buyer or investor often based on perceived synergies when the business is combined with another business. This standard of value is often used in merger and acquisitions analysis.

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