Methods for a PPA Valuation
When buying, growing, or acquiring a business, receiving a purchase price allocation (PPA) valuation can be a critical step. As part of a PPA business valuation, professional business appraisers use various valuation methods to determine the value of a company’s assets. This ensures compliance with accounting standards and offers a clearer understanding of a business’s value. If you are preparing to receive a PPA valuation, it may be helpful to understand the common methods for a PPA valuation.
In this article, we explain the three common methods for a PPA valuation. Understanding the basics of the PPA valuation process can be useful as you prepare to obtain a business valuation. To learn more, see Reasons to Obtain a Purchase Price Allocation Valuation. For tailored guidance, it is important to work with an experienced business appraiser.
Peak Business Valuation is a professional business appraiser that regularly works with individuals looking to buy, grow, or sell businesses. We are happy to provide you with a PPA business valuation. In addition, Peak can answer any questions you have on PPA valuations and methods for a PPA valuation. Start by scheduling your free consultation with Peak Business Valuation below!
What is a PPA Valuation?
A PPA valuation is a financial analysis that determines the value of a business’s individual assets. This includes an assessment of both tangible and intangible assets. The PPA valuation process also involves evaluating the liabilities a company has. The main purpose of a PPA valuation is to show how a business’s purchase price is distributed. The purchase price allocation is important for regulatory compliance and providing transparency to stakeholders. For more information, check out How to Calculate a PPA Valuation.
Common Methods for a PPA Valuation
When performing a PPA business valuation, business appraisers may use the market approach, the income approach, and the asset approach. The valuation method an expert uses depends on the assets being valued.
At Peak Business Valuation, we often use a combination of these methods for the most accurate results. Below, we discuss each of the common valuation methods for a PPA valuation.
The Market Approach
The market approach is a common method for PPA valuations. This valuation approach involves comparing the company to similar businesses that recently sold. This comparison allows valuation analysts to accurately calculate the fair market value of the company’s assets. The market approach also involves using valuation multiples. These are financial ratios that reflect a business’s value based on metrics like earnings, revenue, and cash flow. See The Market Approach Made Simple for more guidance.
As a professional business appraiser, Peak Business Valuation provides PPA valuations regularly. We are happy to provide you with a PPA business valuation and answer your questions about the valuation methods for a PPA valuation. Get started today by scheduling a free consultation with Peak Business Valuation below!
The Income Approach
Next, the income approach in a PPA valuation estimates the future earning potential of a business’s asset. This method is most effective for businesses with stable revenue streams and reliable cash flow projections. When using the income approach, valuation analysts project the future cash flows generated by specific assets over a 3-5-year period. Then, they apply a discount rate to understand the present value of those cash flows. Peak commonly uses these projections to calculate the fair market value of intangible assets. Read The Income Approach Made Simple to learn more.
The Asset Approach
Finally, the asset approach focuses on the value of a company’s tangible and intangible assets as part of a PPA valuation. When conducting a PPA business valuation using the asset approach, business appraisers measure the value of the company’s assets and subtract any liabilities. This method is often used for companies where machinery and equipment make up a large portion of a business’s value. For example, the asset approach would be useful for construction and manufacturing businesses. Read The Asset Approach Made Simple to learn more about this valuation method.
Understanding the PPA Valuation Report
At the end of the valuation process, participants will receive a PPA valuation report. The valuation report is a detailed document that outlines the key findings of the PPA valuation. This includes an explanation of the valuation methods, the allocation of the purchase price, and the business’s strengths and weaknesses. To learn more about the PPA valuation report, see Business Valuation Report Made Simple. If you have additional questions, reach out to Peak Business Valuation today!
Conclusion
If you are buying, expanding, or selling a business, a PPA valuation can provide useful insights for strategic decision making. As part of a PPA valuation, business appraisers help you understand how the purchase price of a business is distributed among its assets. The PPA valuation process may involve a variety of valuation methods. With an accurate PPA business valuation, you can understand the next steps in maximizing the value of your company. For the best results, it is important to work with a skilled and experienced business appraiser.
Peak Business Valuation, professional business appraiser, is here to assist you! At Peak Business Valuation, we value thousands of businesses each year. As such, we are skilled with each of the common methods for a PPA valuation. We are here to provide you with an accurate PPA valuation! Additionally, Peak can address your inquiries on purchase price allocation and how to value a business. Start today with a free consultation with Peak Business Valuation below!
