VALUATION CONCEPTS AND

METHODS
INSTRUCTIONAL MATERIALS

Module 1 – Introduction on Valuation Concepts and Methods

Activities/Assessments:
1. Essay. Answer the following questions using what you’ve learned in this module.
Use diagrams, if needed:
a. Why we need to value, value?

Value is what determines the

worth of something in any market, legal VALUE OF VALUE
or illegal, because we expect a return
on what we sacrifice to gain that
something. That is why, it is at most
important to give value to value. Measurement Tool in Business
Another reason it that it is an essential
tool that will help one to make a better
and wise decision, especially when we Helps in Strategic Planning
talk about business matters, for in
creating or measuring the value of
Important Tool in Decision
something, one should choose what’s Making
best for him/her, either in seller or
buyer’s point of view.

b. Why valuation matters to business people?

For business people, valuation gives them the current or projected

worth of their assets and company, that is useful for them to improve their
company. With valuation, businesses will not be shocked of unexpected and
expected sale that may come up because the values of their products and
the company itself is updated. Another thing is that, when a business is
needing additional funds, with valuation, they can see if their business is
credible enough for their investors and lenders. It can also help them in
making negotiations and properly manage their business. Business people
can also use valuation as a projection for future profitability and a tool in
historical comparison of past profits.
c. Why do people perform valuations?

VARIOUS REASONS FOR

There are several reasons why people perform PERFORMING BUSINESS
valuations in their business. One is for litigation, which VALUATION
means that this is used as proof in case there are court
cases one person is dealing into. Second, is exit LITIGATION
strategy planning that is all about how company will
EXIT STRATEGY
enhance its profitability before selling it. Third and PLANNING
Fourth are about selling the business, in the point of
view of the buyer and seller. Fifth reason is about the BUYING A BUSINESS
use of valuation in strategic planning, that will help the
SELLING A BUSINESS
company in making better decisions. Funding is the next
reason, which aims to enhance the company’s credibility STRATEGIC PLANNING
for the potential investors and lenders. And lastly, is the
selling of share in a business, which talks about the FUNDING
proper business valuation to know if the company is
SELLING A SHARE IN
ready to be sold. BUSINESS

d. How and when to apply valuation principles?

Valuation principles aid the owners of businesses in increasing the

value of their businesses, and that is the reason that valuation is done
when one business has a high capacity to generate future cash flow, the
market is at the right moment to exit a business, a proper asset base is
built for its tangible assets to have a higher going concern value, the
business is independent enough that the control of the owner is limited or
none at all, and also the business has high liquidity. And for these things to
achieve, valuation principles are applied with cautious, consistent and keen
monitoring, and aiming at the best interest of the company.