Handbook of Business Valuation

By Thomas L. West; Jeffrey D. Jones | Go to book overview

CHAPTER TWENTY-ONE
Valuing Manufacturing
Businesses

DARRELL L. FOUTS

Though the focus of this chapter is on valuing manufacturing businesses, it is important to keep in mind the procedures and methods used to accomplish your goal of buying or selling a company For the purposes of this chapter, the discussion will be limited to privately held manufacturing companies with sales volume from $1 million to $25 million per annum. A significant amount of the information presented applies to other types of businesses, as well as larger or smaller sizes, but the uniqueness of this arena will soon become evident.

NOTE For purposes of simplicity, references to “buyer” and “seller” refer to
individuals (male and female), partnerships, corporations, investment
groups, or other entities.

As with most business valuations, there are two major components to be considered when valuing a manufacturing company: the hard net asset values of the business and the historic income-producing capability of the business. This information should come from the most recent three to five years of financial records. Let us first examine the balance sheet. The most recent balance sheet and accompanying notes will provide the most important information. Historic balance sheets will provide support data and help identify trends.

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