ses. It makes clear whether the acquisition can pay for itself out of its own cash flow. The Discounted Cash Flow Method is most often used when the company is going to be purchased as an investment and held for a limited number of years. It is also used in high-risk situations, such as highly leveraged deals that have more of a proportion of debt than usual. The third method is the Excess Earnings Method, used to value any profitable company. The Excess Earnings method "assumes that a business is worth the market value of its tangible assets, plus a premium for 'goodwill' if the earnings are high enough."(Horn, 51)The next step is to set a purchase price. "There is no right or wrong way to value a business. Each company has different characteristics. Obviously, the seller will argue that the net asset value method is right because that's what he invested in the business."(Tuller, 103) You should consider all factors in the P/E/ ratios, liquidation value, net asset value, and historic and projected cash flow. Using other people's money to finance a purchase is a key ingredient if business success. Financing falls into two separate categories: debt and equity. Debt financing is the most elementary of the two. It is basically taking a loan from a lender and paying it back with interest. It is reliant on the business or individual's ability to pay the loan off. Usually, collateral will be made available to the source of the loan in the case that you cannot continue to make payments. A good credit history and reputation is another aspect that financing is reliant upon. With these, a loan is much easier to get. "Equity financing means obtaining funds in exchange for selling or giving up a part of interest in the business. Equity financing is not a loan; rather, it is the sale of a part of you business."(Fallek, 82) The popularity of equity financing has increased in the high tech industries in the past few years. However, selling a part of y...
