There are only three approaches to value any asset, business or business interest; they are (1) the asset approach; (2) the income approach; and (3) the market approach. While there are no other approaches to value, there are numerous methods that the expert may consider within each of these approaches.
Types of Approaches
Each approach has inherent strengths and weaknesses and some provide a more reliable conclusion of value than others depending upon the individual circumstances. The valuation expert should consider all three approaches; however, it is often the case that all three approaches cannot be applied. For example, in an asset approach, the business valuation expert may seek to value intangible assets. The difficulty of finding reliable data to value individual intangible assets may not only be an impossible task but also intangible asset values are frequently captured in proper application of the income and market approaches. Ultimately, it is the responsibility of the parties and their counsel to persuade the court that his or her expert’s valuation conclusion is more reliable based upon the approaches that are applied and the judgment exercised by their expert.