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Definition: Business Valuation
Business valuation is a procedure of estimating the economic market value of a business using a defined set of methods. Business valuation may be done to find out fair value of the business for a variety of reasons, including, but not restricted to sale, partnerships, mergers and alliances.
Some of the commonly used methods in business valuation are:
Discounted Cash Flow Method
Market Value Method
Asset Accumulation or Sum of Assets method
Price earnings Multiples Method
Example: Case Study of Jet Airways and Etihad Airways
After FDI in aviation increased to 49% in India, Etihad Airways, a Gulf carrier, decided to invest in Jet Airways. So for this purpose, valuation of Jet Airways had to be done, in order to determine the economic value and to finalize the deal amount Etihad would pay to buy a stake in the company. It was reported that Jet had valued its business at a huge premium as per Etihad’s valuation, and Etihad therefore did not wish to pay the amount.