Business Valuations Terms

Business Valuations Terms

Australian Accounting Standards Board

Accounting Professional & Ethical Standard

Accounting Professional & Ethical Standard Board Limited

Professional Standard 215 – Forensic Accounting Services issued by  the APESB applying to all forensic accounting engagements or assignments commencing on or after 1 July 2009 completed by members of the Institute of Chartered Accountants in Australia.

A business valuation method that determines the value of a company by subtracting its liabilities from the value of its assets.

A commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity.

A method of business valuation that compares a company to similar companies that have recently sold.

The additional amount an acquirer is willing to pay to achieve an equity holding that gives them the power to execute decisions on behalf of the entity and other shareholders.

The cost of obtaining financing for a company’s operations.

A valuation method that estimates the future cash flows of a business and discounts them back to their present value, taking into account the time value of money, and the level of certainty that the business will achieve its forecast.

An amount or percentage deducted from the value of an ownership interest to reflect the relative absence of marketability.

[Earnings Before Interest and Taxes]. A company’s earnings before interest and taxes are deducted.

[Earnings Before Interest, Taxes, Depreciation, and Amortisation]. A company’s earnings before interest, taxes, depreciation, and amortisation are deducted.

[Enterprise Value]. The value of a business before adjustments to reflect debt levels or surplus assets.

The enterprise adjusted for debt and surplus assets.

[Fair Market Value]. The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market when neither is under compulsion to buy or sell and when both have a reasonable knowledge of the relevant facts.

[Full time Equivalent]. Refers to the number of hours considered full-time in the business.

[Financial Year]. Refers to a time period of 12 months used for tax purposes. The Australian financial year starts on 1 July and ends the next year on 30 June.

The value of a business enterprise that is expected to continue to operate in the future.  The intangible elements of Going Concern Value result from factors such as having a trained workforce, an operational plant, and the necessary licences, systems and procedures in place.

An intangible asset that represents the value of a company’s reputation, customer relationships, and other non-physical assets.

[Goods and Services Tax]. A tax on goods and services sold domestically for consumption. The tax is included in the final price and paid by consumers at point of sale and passed to the government by the seller.

Is the use of an asset that maximises its productivity and that is possible, legally permissible, and financially feasible….may be for continuation of an assets use or from some alternative use.

A method of business valuation that estimates the present value of a company’s expected future income streams.

Assets that do not have a physical presence, such as patents, trademarks, and goodwill.

The enterprise Value determined without adjusting for Synergy benefits.

Is the value of an asset to the owner or a prospective owner for the individual investment or operational objectives.  It is an entity-specific basis of value: ie: the basis of the value reflects the benefits received by an entity holding the asset and, therefore, does not necessarily involve a hypothetical exchange.

International Valuation Standards (effective January 2020)

The value of a company’s assets if they were sold in a liquidation sale.

A method of business valuation that compares a company to similar companies that have recently sold.

The total value of a company’s outstanding shares of stock.

Ratios used to compare a company to other companies in the same industry.

The price at which a company’s shares are currently trading.

The combination of two companies through a purchase or a merger.

The value of a company’s assets minus its liabilities.

Net present value. The value of a company’s expected future cash flows, discounted to their present value.

Price-to-Earnings Ratio. A ratio that measures a company’s stock price relative to its earnings per share.

The process of determining the value of a company that is not publicly traded.

The process of determining the value of a company that is publicly traded.

The cost of replacing a company’s assets if they were destroyed or lost.

Return on Equity. A measure of a company’s profitability, calculated by dividing its net income by its shareholders’ equity.

Return on Investment. A measure of a company’s profitability, calculated by dividing its net income by its total assets.

The estimated value of a company at the end of a period of analysis, typically based on a multiple of the company’s expected cash flows.

[Weighted Maintainable Earnings] Earnings calculated based on the historical profit of the business over a period of time, but exclude non-business and extraordinary items.