Which of the following concept (s) is/are used for valuation for the purpose of buying or selling of a business ?
Answer & explanation
Correct answer: option 4
Valuation of business for buying or selling uses EBITDA as one of the criteria. Basic philosophy in this thought process is when someone buys a business, he or she buys the “future Cash Flows” from that business. Hence they are willing to pay a “multiple” of the EBITDA. However, there are timing issues and people use concepts like DCF (Discounted Cash Flow) or IRR (Internal Rate of Return) etc.