Value is a
worthless term by itself because it can mean so many different things. A
value found for one purpose can be entirely different from the value for
another. Understanding exactly what type of value you are looking for can
make the information you obtain from the valuation much more useful. Here is a look at some of the many kinds of value:
Value: A
useless word by itself.
Book
value: Not a standard of value at all. Book value is an accounting
term for the total net assets minus total liabilities on the balance
sheet. Intangible assets are usually excluded from book value.
Fair
market value: Fair market value is defined as, "The price at
which the property would change hands between a willing buyer and a
willing seller when the former is not under any compulsion to buy and the
latter is not under any compulsion to sell, both parties having reasonable
knowledge of relevant facts." This definition and the standards for
fair market value were set by the Internal Revenue Service in Revenue
Ruling 59-60. The definition suggests that fair market value cannot result
from purely subjective factors such as sentimental value. It also cannot
result from a forced sale, or one resulting from an unusual or rigged
market. It is used for federal and state tax matters, including gift,
estate, income and inheritance taxes.
Fair
value: Statutory standard of value usually used in court cases
involving dissenting shareholders’ litigation. Court precedent in most
states has not equated fair value with fair market value, but the courts
have reached little other consensus on its meaning. In real estate
appraisals, on the other hand, fair value is often used synonymously with
fair market value.
Liquidation
value: Liquidation value is the value derived from the piecemeal sale
of assets. The sale can be orderly or forced, which can affect the value. Liquidation value is typically at the low end of the value spectrum.
Intrinsic
value: Subjective value of an entity to an owner or a buyer. Intrinsic
value may exclude current market influences. It also may include
consideration of such things as the company’s assets, and its likely
future earnings, dividends and growth rate.
Investment
value: Value to a particular buyer or investor considering his or her
specific personal circumstances, knowledge of the transaction and
potential synergies. This value can be higher or lower than the company’s
fair market value.
Enterprise
value: Value of 100% of the shareholders’ equity on a control basis.
Invested
capital value: Fair market value of 100% of the equity plus the market
value of long-term debt.
Minority
value: Value reflecting an ownership position of less than 50%.
Control
value: Additional value inherent in a legally controlling interest,
reflecting the power of control over the business.
Marketable
value: Value of an equity assuming a pre-established market in which
that equity can be exchanged.
Private
company value: Opposite of marketable value. Private company value
represents a decreased value due to the limitations in the equity’s
marketability.
