Business Valuation

“Valuation is not an objective exercise, and any preconceptions and biases that an analyst brings to the process will find their way into value”.

 

Business valuation attempts to estimate or form an opinion as to the fair market value of a business at any given point in time. By their very nature, valuations are not precise. There is no universal legal framework that dictates how the valuation should be performed.

 

Therefore, valuation is an art rather than an exact science, and a properly conducted valuation is nothing more than an expression of informed opinion / best estimate, which is based on the fact of past financial performance and judgmental estimation for the future.                                                                                 - Aswath Damodaran

 

Value is the ‘worth’ of a thing. It can also be defined as ‘a bundle of benefits’ expected from it. Value is a subjective term as what is a specific measured value to one person may not be the same for others.

P J Shah - Business Valuation in Ahmedabad, Gujarat

 

Price is what is charged by a seller or provider of product or service. Many a time, it is a function of market forces.


Distinguish between Value and Price

"Price is what you pay, value is what you get." – Warren Buffet

Price

Value

Amount of money or other consideration asked for or given in exchange for something.

Value envisages the anticipated benefit/utility which would be derived from something.

Price is an outcome of a transaction

Value exists even if a transaction is not there

Price is ascertained on the basis of the demand and supply forces existing in the market

Value is a measure of the expected benefits of a thing.

Price is ascertained from the consumer's perspective

Value is ascertained from the user's perspective.

Market forces have a grave impact on Price

Market forces have minimal / no impact on Value

This can be explained easily with the popular example of water and diamond. Water is much important for us to survive still it is of low price, while the diamond is just used for ornamentation and nobody dies without it, It is priced very high. The reason behind this is its value, as the value of water is much for us, it is available at a low price, while the value of a diamond is less for us. Therefore, it is priced very high.



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