Accounting All-in-One For Dummies, with Online Practice, 2nd Edition

Chapter 1

Presenting Financial Condition and Business Valuation

IN THIS CHAPTER

Valuing assets in balance sheets

Using the balance sheet to estimate the value of a business

Considering methods to value an entire business

The balance sheet, also called the statement of financial condition, gives a snapshot of a business’s financial health at a point in time. It presents the assets of a business on the one hand and the liabilities and equity sources of the business on the other hand, reflecting the balance sheet equation:

Assets = Liabilities + Equity

This chapter considers how to value (estimate the monetary worth of) the assets and liabilities in the balance sheet. Traditionally, a business values assets at historical cost. In this chapter, you find out how to use other methods to value assets and how to compute a valuation for an entire business.

This chapter also explores the various uses for valuations and touches on the field of performing valuations as an occupation. You finish the chapter with a discussion of business valuations based on earnings and cash flow.

Clarifying the Values of Assets in Balance Sheets

The evidence is pretty strong that readers of financial reports ...