Business Valuations: Conclusion or Calculation of Value

You’ve decided that you want your business valuated.  And, perhaps you have heard the terms Conclusion of Value and Calculation of Value.  They sound similar, but are they?  What are the differences and when is it appropriate to use each one?

Conclusion of Value
A Conclusion of Value requires that the valuator apply valuation approaches or methods deemed in the valuator’s professional judgment to be appropriate under the circumstances.

The resulting report for a Conclusion of Value includes a comprehensive analysis in which the valuator must consider all three valuation approaches: asset, market and income.  The valuator also takes into account the market, economy, competition and company-specific risk-factors.  The resulting business value is an opinion of value based on the valuator’s expertise and experience given the facts and circumstances of the business being valued.

A Conclusion of Value is required for all gift and estate tax filings.
Because a Conclusion of Value report is more time-consuming, requires adherence to reporting standards and is generally more in-depth than a Calculation report, it is normally more costly than a Calculation of Value report.

Calculation of Value
A Calculation of Value occurs when the client and member agree to a specific valuation method and how that method will be applied.  Simply, the valuation analyst does not provide an opinion of value, but rather calculates a value based on methods agreed upon with the client.

A Calculation of Value is appropriate for strategic planning, non-contested divorce cases, transactions or executing a buy/sell agreement.  It not appropriate for any situation which has the potential for litigation.

Because of the limited nature of the analysis, a Calculation of Value report is generally less expensive than a Conclusion of Value.