Business Valuation - There Are Two Premises of Value

There Are Two Premises of Value

Going Concern - Value as an ongoing operating business enterprise. Liquidation – Value when business is terminated.

Premise of value for fair value Calculation

•In use – If the asset would provide maximum value to the market participants principally through its use in combination with other assets as a group. •In Exchange – If the asset would provide maximum value to the market participants principally on a stand alone basis. Business valuation results can vary considerably depending upon the choice of both the standard and premise of value. In an actual business sale, it would be expected that the buyer and seller, each with an incentive to achieve an optimal outcome, would determine the fair market value of a business asset that would compete in the market for such an acquisition. If the synergies are specific to the company being valued, they may not be considered. Fair value also does not incorporate discounts for lack of control or marketability.

Note, however, that it is possible to achieve the fair market value for a business asset that is being liquidated in its secondary market. This underscores the difference between the standard and premise of value.

These assumptions might not, and probably do not, reflect the actual conditions of the market in which the subject business might be sold. However, these conditions are assumed because they yield a uniform standard of value, after applying generally accepted valuation techniques, which allows meaningful comparison between businesses which are similarly situated.