Business Funding Secrets
Business Funding Secrets

Glossary of Terms used in
Business Valuations
&
Business Appraisals

 

The following list of Business Valuation Terms
is provided by
Business Funding Secrets

 

 

 

Adjusted Book Value

Operating business value after balance sheet liabilities, off-balance sheet liabilities, and assets are adjusted. This value does not include intangible or contingent assets.


ANN Gross
Annual Gross Sales. Normally net of state sales tax.

Area
Region of geographical location of business.

Ask Price
The dollar amount wanted for the business, but typically does not include the inventory.

Asset Based Approach
One way of determining the value of a business based directly on the value of the assets, or the business less liabilities.

Asset Sale
A form of business acquisition where the seller of a corporation agrees to sell all, or some, assets and liabilities of the business to a buyer. The corporate stock is not transferred. (Look at Stock Sale.)

Book Value
According to the Balance Sheet the value of the asset after depreciation. Synonymous with: net book value, net worth, shareholder's equity.

Bus Type
Best description of the business.

Business Valuation
The act or process of arriving at an opinion or determination of the value of a business or enterprise or an interest therein.

Capitalization
The conversion of income into value. The capital structure of a business enterprise. The recognition of an expenditure as a capital asset rather than a period expense.

Capital Structure
The composition of a business entity's invested capital.

Capitalizing Net Income
Determining a future value for the company by dividing the pro forma net income by the required Return on Investment (ROI).

Cash Flow
The excess of sources of cash over uses of cash.

Days on Mkt
Actual number of days the business was on the market.

Deal Structure
The allocation of the payments or other considerations made for the acquisition of a business. The components could include cash, notes, stock, consulting agreements, earn out provisions, and covenants not to compete. The sale could take the form of an asset sale or a stock sale. (both of these terms are provided with this Glossary of Valuation Terms.)

Discount Rate
A rate of return used to convert a monetary sum, payment or receivable in the future into present value.

Earn out
The portion of the purchase price of the business that is contingent on future performance. It is payable to the sellers only when certain pre-defined levels of sales, or income, are achieved in the years after the business acquisition.

EBIT
Earnings before interest and taxes.

EBITDA
Earnings before interest, taxes, depreciation, and amortization.

Equity
The owner's interest in property after deduction of all liabilities.

FF&E
Estimate of Value of Furniture, Fixtures & Equipment.

Financial Recasting
Takes financial statements and adds back items such as superfluous, excessive, or discretionary expenses and non-recurring revenues and expenses. The “recasting” provides a new economic view of the company, and allows for comparisons with other investments.


Franchise Royalty
Actual royalty less advertising percentage.

Free Cash Flow
Cash available for distribution after taxes, but before the effects of
financing. Calculated as debt-free net income plus depreciation less
expenditures required for working capital and capital items adjusted to remove the effects of financing.

Going Concern
An operating business enterprise.

Goodwill or Intangible Value
The amount of the purchase price of a business that exceeds the fair market value of the company's operating assets.

Income Approach
A general way of determining the value of a business based on anticipated benefits.

Intangible Assets
Non-physical assets. Examples: goodwill, workforce qualities, database, know-how, customers, suppliers, proprietary systems, patents, copyrights, trademarks, or trade names, covenant not to compete.

INV
Inventory at the time of sale.

Liquidation Value
The value of a company assuming the assets of the company are sold individually and not sold as a whole of an on-going business.


Market Approach
A general way of determining a business value using one or more methods that compare a specific business to similar businesses that have been sold.

Market Multiple
A factor that can be applied to the financial, operating or physical data of the business to generate an indication of value. The market multiple is derived from observed transactions in the marketplace where the value can be divided by the comparable companies' financial, operating, or physical data to generate the market multiple.

NAISC
North American Industry Standard Code.

Net Assets
Total assets less total liabilities.

Net Cash Flow
Cash available for distribution after taxes and after the effects of financing. Calculated as net income plus depreciation less expenditures required for working capital and capital items.

Net Income
Revenue less expenses, including taxes.

Non-Operating Assets
Assets which are shown on the company's balance sheet that are not used in the operation of the business. They are extra assets that are not necessary to generate revenue for the business.

Normal Working Capital
The amount of working capital needed by the company to sustain operations throughout the year. Calculated as the average of current assets, which includes a normal amount of necessary cash, minus current liabilities (on a monthly basis) over the most recent twelve month period.

Percent Down
Payment as a percent of the sale price.

Pharmacy Business Valuation

The value of a pharmacy business. Used in pharmacy acquisitions and finance. Visit www.PharmacyValuations.com for more information about pharmacy business valuations.


Present Value
Today’s value of a future payment, or stream of payments. The value is discounted to reflect the risk over time.


Pro Forma Statements
Hypothetical statements for planning. Projections of financial statements as they would appear if an event (acquisition, investment) did happen.


Rate of Return
An amount of income/loss and the change in value on an investment, expressed as a percentage of that investment. The ratio of gain or loss on an investment.

Rent/Sales
Rent as a percent of sales.

Sale Date
Actual date of the sale.

Sale Price
Actual sale price of the business.

Sale/Sales
Sale price divided by gross sales.

Sale/SDE
Sale price divided by seller's discretionary earnings.

SDE
Seller's Discretionary Earnings. Net profit before taxes, owner compensation, amortization, depreciation, interest, other non-cash expense, and non-business related expense. SDE assumes there is only one working owner.

SDE/GROSS SALES
Seller's discretionary earnings divided by gross sales.

SIC
Small Business Industry Classification Number.

Stock Sale
A form of business acquisition whereby all, or a portion, of the stock in a corporation is sold to the buyer. (Look at Asset Sale)

Tangible Assets
Physical assets, that may be included in a business acquisition. Example: accounts receivable, inventory, leasehold improvements, furniture and fixtures, equipment, land and building.

Terminal Value
The value of a business at the end of a pro forma period, calculated by
dividing the last year’s pro forma cash flow (normalized for depreciation and capital expenditures) by the required Return on Investment.

TERMS
The period of time, or the conditions, under which an agreement is made.


Valuation Approach
The general way of determining business value by using one, or more, specific valuation methods. (See Asset Based Approach, Market Approach and Income Approach definitions.)

Valuation Method
The specific approach used to determine the business value.

Valuation Multiple
A factor (a multiplying number) that serves as the numerator. The financial, operating, or physical data of the business which is being valued, serves as the denominator.

Value
An agreed amount for the business between a seller to a buyer.


Working Capital
The excess of current assets over current liabilities.

 

 

 

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