Fair Market Value
Fair Market Value (FMV) assumes a willing buyer and willing seller in an open market of all possible buyers and sellers, and in which both parties know all the facts about the business.
Multiples of Earnings
The earnings (income) of a business are used to value a business. In most cases, EBIT (earnings before interest and taxes) is the measure used. Buyers use rules of thumb to value businesses based on multiples of business earnings. For example, a buyer might pay 3 or 4 times earnings if a business has market leadership and a strong management.
Appraised Value
Appraised value usually relates specifically to the assets of a business, either (a) equipment and machinery, or (b) real property (land and building. An appraisal is done by a certified appraiser, who looks at the property and other assets and provides an estimate of value depending upon age, condition, tax records, location, and other factors. An appraised value is considered unbiased, because it is done by a qualified third party.
Liquidation Value
Liquidation value is the price that can be obtained for a business that is, or will soon be, ceasing operations. Because there is no longer a customer base, there is no value in "goodwill," and the value of assets is lower because the business must be sold quickly. Liquidation value applies in a Chapter 7 (liquidation) bankruptcy.
Investment Value
If a business is being sold as a whole to an investor, this is the value of the business based on return on investment. Sometimes this is called "going concern" valuation.
Multiple of Earnings
