A good business valuation report must address both the microeconomic and macroeconomic factors that affect the business under review. The microeconomic factors include all of those items that flow from the way the business is operated, while the macroeconomic factors address wider issues related to the way in which economic factors like governmental policies and inflation affect the business. Microeconomic considerations include such factors like the history of the business, the company ownership and management, the immediate environment and the methods of operation.
Income or financial statements are one of the microeconomic factors included in business valuation reports. This is an assessment of the revenue account with the aim of calculating the net income for each business cycle. The history of the business that is included in the business valuation report includes characteristics like the turnover rate, the liquidity and the profitability of the business. The reason for including a financial statement in a business valuation report is because it gives the valuator a yardstick with which to measure the growth or success of the business in comparison to similar businesses in related environments.
Balance sheets are microeconomic components of a business valuation report. These reflect the liability and asset accounts with the aim of reaching a figure indicating the net worth of the business as of the period of the report. The net worth of a business can be calculated by subtracting the total liabilities of the business from the business’s total assets. Another name for the net worth of the business is the shareholder’s equity.
Other factors included in a business valuation report include ownership and management. The analysis of management of a company takes into consideration aspects like the quality of the management over the lifespan of the business. This factor matters because good or bad management can have a positive or negative influence on the business. The method of the ownership of the business also matters because a company with little ownership will not have as much control as a company with a majority interest.
For instance, a company in which one shareholder has a controlling interest in the stock will be valued differently from a company in which none of the shareholders have a controlling interest. Government policies like taxation as well as government regulations play a role in the way a business is valued. This is due to the effect of these policies on the operations and value of the business under valuation. These regulations and policies are analyzed in respect to their effect on the business.
