What Does a Sample Business Valuation Report Contain?
A business valuation report is of utmost importance for any small and medium businessman. It not only becomes an asset to the company but also comes handy during the sale of the firm, merger or acquisition and also any instance of partnership divorce. There are several firms who assist businesses in generating valuation reports. Although different firms follow different formats for a business valuation report, there is a standardized outline too. A standard company valuation report template usually starts with a preface which consists of a summary and the scope of business appraisal and its relevance to the concerned parties. It is followed by a write-up discussing the local as well as global economic conditions at the time of the valuation teamed up with an industry analysis report. This section is again followed by the financial analysis of the firm.
A standard financial analysis statement consists of the common size analysis, liquidity, turnover and profitability ratio analyses and future trend analysis. The comparison is done in two stages. In the first stage, the valuation expert compares the company under question with other businesses in the same industry and tries to determine the patterns in their relative growth and expansion with time. In the second stage, the financial statement of the current year is compared with the past financial statements. This comparison helps in assessing the risk associated with the business. The statements of cash flow provide very important information for financial analysis in a sample business valuation report. The next step is normalization of financial statements. The objective of doing so is to understand the capability of the firm to generate revenue for its owners. It is usually depicted quantitatively with the help of the amount of cash a business owner can remove from the capital without affecting the operational outcomes of the business. Normalization involves four types of adjustments. i) Comparability adjustments This adjustment is done to minimize the discrepancy in the mode of presentation of data from the overall industry and that of the particular firm. ii) Non-operating adjustments There is a very less discussed aspect of any business sale that the assets which are not involved in production might remain with the business owner. So, the value of those assets are duly subtracted from the net worth of the business in order to get its right value. iii) Non-recurring adjustment
This adjustment is done to compensate for the events related to the business operations which are non-recurring in nature. For instance, the loss incurred due to any lawsuit is adjusted as it is least likely to happen again. iv) Discretionary adjustment This adjustment is done to ensure that the assets of the business and the personal assets of the business owner are well-separated from each other. A business valuation sample specifically seeks to maintain this separation.