RECONCILIATION OF THE VALUES OBTAINED BY DIFFERENT BUSINESS VALUATION APPROACHES

Abstract

The economic value of a business can be determined by specific methods and techniques that reflect three distinct valuation approaches: the asset-based approach, the comparison-based approach and the income-based approach. If the first two approaches are based on the economic principle of substitution, the income-based valuation focuses on anticipating future income. When there are significant differences among the values obtained by applying the three types of approaches, the valuator must carry out a mandatory reconciliation process on the values, in which there are no easy answers or easily applicable procedures. Their final conclusion on the value shall be based on: (i) the definition of value; (ii) the purpose and designation of the valuation; and (iii) the relevant information existing on the date of the valuation, needed for fulfilling their valuation mission.