Business Valuation describes the process of determining the value of a company through using a variety of theoretical models. Business valuation can be done on a discrete project basis or can be part of a larger process such as raising financing or acquiring a company. In the latter, the business valuation is implicit in the transaction which is to say that the lenders are simultaneously valuing the companies as part of their overall financial evaluation. Business valuation serves a situational need that can be triggered by a number of events. They can be estate planning, receiving a bank loan, sale of a company or merger with another company. There are several ways to conduct a business valuation and they roughly fall into two categories – a balance sheet approach or an income statement approach. In a balance sheet approach, the business valuation expert will typically assign a number based on the company’s book equity value. This is performed through developing market comparable metrics and then adjusting for a variety of factors such as size, profitability and growth rate. The outcome of this approach is to arrive at a valuation of the company as a multiple of book value such as 2 times equity book value. This type of business is most commonly used with companies that have significant assets and low profit margins such as banks, insurance companies and other financial institutions. The other approach for business valuation is through looking at the income statement and conducting a discounted cash flow value based on the future cash flows or by developing a multiple approach. The multiple approach is based on arriving at a multiple of the companies pro forma EBITDA. This can range from a low of 3 times to over 10 times EBITDA for a middle market company. The discounted cash flow valuation looks at the projected growth and discounts it back to a present value using an appropriate discount rate. In our experience, business valuation is part art and part science. Often, it is decided not by mathematical approaches but by what the market will bear. Too often, emotion or non-knowable factors will enter into the valuation resulting in business valuations than seem either unduly low or unduly high. In the end, business valuation is often best understood through the eye of the beholder.