Business valuation standard
So, imagine you have a toy that you really love. Let's call it "Toy A". Now, one day you want to sell Toy A to your friend for some money. But, how do you decide how much money you should ask for Toy A? This is where the concept of business valuation standard comes in.
Business valuation standard is a way to figure out how much a company or business is worth. It's like trying to figure out how much money you should ask for Toy A when you want to sell it. There are many ways to do this, but the most common way is by looking at a few things. These things are like clues that help us figure out how much the business is worth.
The first clue is how much money the business makes. This is called the "revenue". Let's say you have a lemonade stand and you make $10 every day selling lemonade. That means your lemonade stand's revenue is $10 a day.
The second clue is how much money it costs to run the business. This includes things like buying lemons, sugar, cups, and other things that you need to run your lemonade stand. This is called the "expenses". Let's say it costs you $3 every day to buy all the things you need for your lemonade stand. That means your expenses are $3 a day.
The third clue is how much money the business owes other people. This is called the "liabilities". Let's say you borrowed $50 from your parents to start the lemonade stand. This means you have $50 in liabilities.
The fourth clue is how much money the business has. This is called the "assets". Let's say you have a lemonade stand that's worth $200. This means you have $200 in assets.
Now, we take all of these clues (revenue, expenses, liabilities, and assets) and use a formula to figure out how much the business is worth. This formula is based on how much money the business makes and how much it costs to run the business. When we do this, we get a number that tells us how much the business is worth. This number is called the "valuation".
So, just like how you figured out how much money you should ask for Toy A based on how much you love it and how much your friend is willing to pay for it, we can figure out how much a business is worth based on its revenues, expenses, liabilities, and assets. And this is what the business valuation standard is all about!
Business valuation standard is a way to figure out how much a company or business is worth. It's like trying to figure out how much money you should ask for Toy A when you want to sell it. There are many ways to do this, but the most common way is by looking at a few things. These things are like clues that help us figure out how much the business is worth.
The first clue is how much money the business makes. This is called the "revenue". Let's say you have a lemonade stand and you make $10 every day selling lemonade. That means your lemonade stand's revenue is $10 a day.
The second clue is how much money it costs to run the business. This includes things like buying lemons, sugar, cups, and other things that you need to run your lemonade stand. This is called the "expenses". Let's say it costs you $3 every day to buy all the things you need for your lemonade stand. That means your expenses are $3 a day.
The third clue is how much money the business owes other people. This is called the "liabilities". Let's say you borrowed $50 from your parents to start the lemonade stand. This means you have $50 in liabilities.
The fourth clue is how much money the business has. This is called the "assets". Let's say you have a lemonade stand that's worth $200. This means you have $200 in assets.
Now, we take all of these clues (revenue, expenses, liabilities, and assets) and use a formula to figure out how much the business is worth. This formula is based on how much money the business makes and how much it costs to run the business. When we do this, we get a number that tells us how much the business is worth. This number is called the "valuation".
So, just like how you figured out how much money you should ask for Toy A based on how much you love it and how much your friend is willing to pay for it, we can figure out how much a business is worth based on its revenues, expenses, liabilities, and assets. And this is what the business valuation standard is all about!