Company Valuation Techniques:

a. Determining book value
b. Determining liquidation value
c. Determining market value

Under what conditions would you choose each of the valuation methods? 
 What are the major limitations of the valuation methods?

Valuation first of all is an art and not a science. So there likely
isn't a clear answer here. In general there are three main valuation
techniques:

1. Asset value
2. Market value/multiple
3. Cash Flow

A little bit about this can be found in the article "What's your
Company Value" (http://www.entrepreneur.com/article/0,4621,295301,00.html)

Linking them to your three choices, one can say that book value will
likely give the middle valuation. Determining the book value will also
depend on how items in the books are valued, e.g. is property revalued
each year to market value or is it kept in the books at the value it
was bought at? This is also the difference between adjusted and
historic book value as seen in the article above. It's probably more
of a start then an end to a valuation. It is the underpinning for the
next valuation in your list really.

Liquidation value would be something that might be interesting in a
take-over. It's goind one step further than book value in that it
looks at what is left if everything is paid and sold. The value of
assets for liquidation are normally less than market value and
potentially than book value. It is the  absolute bottom if you just
want to buy the company and then sell it in parts.

The market value either exists when the company is public or can be
derived via comparison with similar listed companies. This might help
in finding out if the company is over or under valued. Market
multiples are normally used as a comparison. Is my company over or
undervalued in relation to the market and why is that?

Then you can link them together:

1. find out what the book value of the company is, adjusting it if the
items are in the books at historic cost. This will give you an idea of
how much the company is valued in assets. For many companies this just
doesn't work anymore, as there is a lot of value in a brand or
knowledge.
2. but you could just take over the company. If you liquidate it, then
what would the value attached to this be? For how much could all the
assets be sold? How many liabilities does the company have that need
to be sold? What is left then?
3. What is the market value of such a business? Can it be brought up
to that market value or not? If yes, would that mean an increase in
shareprice higher than the liquidation value?

These are the things you could ask. I hope it helps.

More on valuation methods can be found at "Business Valuation Methods"
here: http://www.ventureline.com/techniques.asp

Searches uses:
Company valuation book liquidation market
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