f an important financial objective of a business is to maximise the value of the business, how can
this be achieved? The answer lies in the different approaches to valuing a business.
There are two broad approaches to valuing a business:
(1) Break-up Basis: this method of valuing a business is only of interest when the business is
threatened with liquidation, or when management are considering selling off individual assets to
(2) Market Value Basis: The market value of a business is the price at which buyers and sellers
will trade shareholdings in a company. This method of valuation is most relevant to the financial
objectives of a business.
When shares are traded on a recognised stock market, such as the Stock Exchange, the market
value of a business can be measured by the share price.
When shares are held in a private company, and are not traded on any stock market, there is no
easy way to measure value. It becomes a subjective judgement on behalf of both the buyer and
seller about factors such as:
• Future profits and cash flows that the buyer can expect t