Valuation methods are techniques used to determine the worth of a business or its assets. Different methods may be appropriate depending on the type of business, the purpose of the valuation, and the available data.

Characteristics:
– Income Approach: Focuses on the potential future earnings of the business, discounting them back to present value.
– Market Approach: Compares the business to similar companies that have recently sold, using market data to estimate value.
– Asset-Based Approach: Calculates the value based on the company’s assets and liabilities, often used for businesses with significant tangible assets.

Examples:
– Income Approach: A business generating consistent annual cash flows might be valued using a discounted cash flow (DCF) analysis, where future cash flows are projected and discounted back to their present value.
– Market Approach: A small retail store could be valued by comparing it to similar stores that have sold recently, using metrics like price-to-earnings ratios or revenue multiples.
– Asset-Based Approach: A manufacturing company with substantial machinery and equipment might be valued by totaling the fair market value of its assets and subtracting its liabilities, providing a net asset value.