About Fair Market Value vs. Fair Value
There are 2 main methods of Valuing Going Concern, non-public Companies or Private Organisations in the Australian context. They are (1) Fair Market Value Method and (2) Fair Value Method Whilst they sound similar in practical terms they are very different and can have a very different outcome to the Valuation Result. To understand the 'price' you must understand the methods.
MARKET-BASED BUSINESS VALUATIONS - The Fair Market Value Method.
SHARE PRICE BASED BUSINESS VALUATIONS - The Fair Value Method.
Please call Paul Nielsen (confidentially) on 0408824122 for a no-obligation discussion about the specific differences between these 2 methods and how they can significantly influence outcomes.
Hear what Senior Valuer, Paul Nielsen has to say about the main methods of Valuing SME's.
The 'Market' for the 'hypothetical offering' (the business) is offered to the open market to determine what the market will pay for it. Prices rise and fall depending on what cycle the market is in (Buyers Market or Sellers Market), how much 'risk' is attached to the specific business and the specific market sector and what comparable businesses in the specific market sector have sold for. This is the "Fair Value Market" at work.
Share priced valuations of Small to Medium Enterprises (SME's) value the shares in a SME private company in the same way that large public companies like BHP are valued. It uses the Depreciated value of the P&E rather than the real potential second-hand value and could include Loans to Directors hidden in the Balance Sheet. It evaluates 'risk' by the fiscal relationship between the business being valued and the whole Australian economy over all industry sectors and does not compare the business being valued to specific comparable businesses in the same market sector.