Chapter 2
What Value?
A common misconception is that, in the world of business valuation, only one single universal value exists. Unfortunately that is not the case. There is a whole variety of different types of values available as well as definitions of value. For this reason, before even working on any spreadsheets, it is very important to clearly define what value we are looking for and why.
2.1 STANDARD OF VALUES
As indicated above, there is a vast number of generally accepted standards of value. The most common when working with unlisted companies are:
Fair value and fair market value may, in a broad context, be categorized under the umbrella term “market value.”
The market value aims to define or describe the subject interest from a “neutral” value perspective; in other words, the value shall reflect a well-informed financial investor’s point of view. This implies a value equivalent to a transfer of the shares, or the business enterprise entity should that be the case, in an open and unregulated market between a rational seller and a prudent buyer with no coercion and when both parties have access to equivalent and relevant information. The value remains free from any type of extra or additional synergistic values or premiums (strategy, economies of scale, acquisition of market shares, etc.) which are likely to benefit only one, or a certain group of, specific investor(s).
Investment value represents the value for an explicit ...
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