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What is Value?
The word "Value" by itself is not very helpful. In business appraisal work, a number of different standards of value are often employed depending on the purpose and use of the appraisal. The following standards of value are the most common:

  • Book Value is not really a standard of value at all. It is an accounting concept used to describe the difference between a company’s total assets and total liabilities. Due to the nature of the accounting process, book value would equal the value of a business only by coincidence. Intangible assets are usually not included in book value.

  • Fair Market Value is defined as the price at which a business would change hands between a willing buyer and a willing seller when the former is under no compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. It is generally also understood that the buyer has the ability to buy and the transaction will be in cash or cash equivalents.

  • Fair Value is the statutory standard of value usually used in court cases involving dissenting shareholders and other similar types of litigation.

  • Liquidation Value is the expected amount that could be obtained from the piecemeal sale of business assets on either an orderly or forced liquidation basis.

  • Investment Value is the value to a specific buyer or investor often based on perceived synergies when the business is combined with another business. This standard of value is often used in merger and acquisitions.

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