A good estimation of firm value will recognize that the numbers are simply estimates that are based on assumptions.
Generally, the estimation of firm value is said to be based basically on some assumptions which shows what was the value of what will be the value of the firm in the future with respect to some parameters.
Estimation of Firm Value
- The firm value is also known as FV
- It is a concept of economy. It reflects the value of business. The sum of claims of its creditors and shareholders is the firm's value. By adding the market value of its debt, equity and minority interest is the simplest way to measure. To arrive at the net value, cash and cash equivalents would be deducted. It is a value which tells that business is worthy at a date.
- The three types of valuation methods are used for business value that are:
- Market
- Cost
- Income
- There are some assumptions for firm value:
- Going Concern Assumption
- Re-investment Assumptions
- Dividend Payout Assumptions
- Macro-Economic Assumptions
- Industry Assumptions
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