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In business valuation, the number you arrive at depends entirely on which type of value you're measuring—and that choice depends on the purpose of the valuation. A company being sold to a strategic acquirer, valued for tax purposes, or assessed in bankruptcy will yield dramatically different figures, even though it's the same business. You're being tested on your ability to match the right value standard to the right context and explain why that standard applies.
Understanding these distinctions matters because exam questions often present scenarios where you must identify the appropriate value type, calculate it, or explain why two parties might disagree on a company's worth. Don't just memorize definitions—know what assumptions underlie each value type, when each is used, and how they relate to one another. Master the logic behind each standard, and you'll handle any FRQ or case study with confidence.
These value types rely on what buyers and sellers would actually pay in real-world transactions. They're grounded in market dynamics and assume some level of competitive, arm's-length negotiation.
Compare: Fair Market Value vs. Market Value—both reference what buyers would pay, but FMV is a hypothetical standard assuming rational parties, while market value reflects actual prices that may include irrational behavior. If an exam asks about valuing a private company for tax purposes, FMV is your answer; for a publicly traded stock's current worth, use market value.
These value types recognize that the same business can be worth different amounts to different buyers, depending on their unique circumstances, expectations, or strategic position.
Compare: Investment Value vs. Synergistic Value—both are buyer-specific, but investment value reflects an individual investor's circumstances, while synergistic value specifically measures the additional worth created by combining operations. On an FRQ about M&A premiums, synergistic value explains why acquirers pay above market price.
These value types attempt to measure what a business is "really" worth based on its underlying economics, independent of current market prices or specific buyer perspectives.
Compare: Intrinsic Value vs. Going Concern Value—intrinsic value is an analytical output from fundamental analysis, while going concern value is an assumption that the business continues operating. A DCF model calculating intrinsic value typically assumes going concern status unless you're explicitly valuing a distressed company.
These value types focus on what's recorded on financial statements or what assets could fetch if sold, providing concrete but sometimes limited perspectives on worth.
Compare: Book Value vs. Replacement Value—book value uses historical costs from accounting records, while replacement value uses current costs to acquire equivalent assets. A company with old equipment might show low book value but high replacement value if prices have risen, or vice versa if technology has improved.
These value types apply to specific circumstances—urgent sales, corporate restructuring, or comprehensive acquisition analysis.
Compare: Liquidation Value vs. Going Concern Value—these represent opposite ends of the spectrum. Liquidation value assumes the business stops operating and assets are sold piecemeal; going concern value assumes it continues operating indefinitely. The difference between them represents the value of the business as an organized, functioning entity. If an FRQ asks about bankruptcy analysis, you'll need both.
| Concept | Best Examples |
|---|---|
| Legal/Tax Standard | Fair Market Value |
| Current Trading Price | Market Value |
| Buyer-Specific Worth | Investment Value, Synergistic Value |
| Fundamental Analysis | Intrinsic Value |
| Operating Business Assumption | Going Concern Value |
| Balance Sheet Based | Book Value |
| Asset Replacement | Replacement Value |
| Distress Scenarios | Liquidation Value |
| M&A and Total Firm Value | Enterprise Value |
A private company is being valued for estate tax purposes after the owner's death. Which value standard does the IRS require, and what key assumptions define it?
Compare and contrast book value and intrinsic value—why might these differ dramatically for a technology company with few physical assets?
An acquiring company offers a 30% premium over the target's market value. Which value concept explains why a strategic buyer would pay more than the current stock price?
A company is filing for Chapter 7 bankruptcy. Which two value types would be most relevant for the bankruptcy court, and how would you expect them to compare?
If an investor calculates that a stock's intrinsic value is but it trades at , what conclusion would a value investor reach—and which value standard are they comparing against market value?