World Introvert Day Jan 2nd 2024 👆🏼

You often hear about the valuation of companies, but it doesn’t always seem to make much sense. In some cases, the number is a ridiculous figure, such as in the case of large companies such as Amazon or Facebook — the number seems gigantic, and can it possibly be true? Well, the answer is yes and no. The truth is that finding the precise value of a company can be difficult and, in some cases, impossible. If you see a valuation, then what’s happened is that someone has used one of several models to calculate the worth of the company. All of the models have their advantages and drawbacks, and some lend themselves to certain businesses more than others.


If you see a valuation of a company, then it is likely that the figure was calculated using either a market-based approach, an income-based approach, or an asset-based approach. But as we said, none of them are perfect, and there’s a lot of subjective opinion that is ultimately used in the valuation process.


But now, you might be asking yourself, ‘why does this even matter?’ and the answer is that there are many reasons why it matters. They’re useful when it comes to business mergers, or applying for a business loan, or they can just help put a value on the business if it’s being sold, among other reasons.


To learn more about business valuations and how they’re calculated and why, take a look at the infographic below, which was produced by Northeastern University.


Infographic Design By Northeastern University Northeastern University