In determining the economic value of an entity, a business valuation typically considers three main approaches: 1) an asset-based approach 2) an income approach, and 3) a market approach.
Depending on the profile and condition of the business being valued, one or all three of these approaches can be employed, but in the case of a profitable going concern business, the income and market approaches are most commonly used.
The income approach looks at value based on the future operating cash flows while the market approach uses multiple from either public companies or actual market transactions of similar companies in applicable industries.
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