Business and Divorce - Understanding the Business Valuation Process

 Posted on April 06, 2020 in Property Division

In a divorce, marital assets are valued and equitably divided between the parties. Businesses, owned jointly or independently, may also be considered a part of the marital estate. The determination of its value is called the business valuation process. Learn more about this process, and how it could impact the outcome of your Illinois divorce.

What is Business Valuation?

Business valuations are used to determine the overall health and net worth of a company. Each facet of the company is objectively and independently evaluated, including the company’s assets, expenses, revenue, cash flow, debt levels, and projected future earnings.

Business Valuation Methods

The process for determining a company’s value will vary, depending on the industry, business type, and customer base. One of four methods may be used.

1. Market Capitalization - The most common form of business valuation. Applies to publicly traded companies on stock exchanges. Fairly straightforward, as most of these companies must report their financial statements to the government on a quarterly basis. Reached by multiplying the total number of outstanding shares against the company’s current prices.
2. Earnings Multiplier - Also referred to as the price-to-earnings ratio (P/E). Examines and compares the company’s current share price to its per-share earnings.
3. Discounted Cash Flow - Similar to the earnings multiplier but it also includes projections on future cash flows.
4. Liquidation Value - Bases the company’s value on what it would be worth if liquidated. Debts and accounts payable are factored into the equation as well.

When choosing a business valuation advisor, parties should choose one that is familiar with their specific industry and company type. Additionally, the advisor should be certified by an accredited organization, such as the American Society of Appraisers, the Institute of Business Appraisers, or the American Institute of Certified Public Accountants.

Our Seasoned Family Law Attorneys Help with the Business Valuation Process

While an attorney is not responsible for the valuation process, they can help prevent bias by ensuring that every aspect of the company has been accurately and fully considered. Moreover, a lawyer can protect your interests in the company and your future financial health.

Davi Law Group, LLC has the knowledge and skills to protect your interests in your Illinois divorce. To get started with the process, call 630-657-5052 and schedule a personalized consultation with our Wheaton divorce attorneys. We fight for the most favorable outcome in every case.

Source:

https://www.thestreet.com/investing/what-is-business-valuation-14797235