Published by ImagingBiz
Valuations of a business or enterprise and real estate share numerous methodologies, terms and standards, which often result in confusion amongst the distinct disciplines. Both types of valuation largely depend upon an income approach. Both utilize financials that are usually prepared and audited by a third-party and in accord with Generally Accepted Accounting Principles. Both valuations depend upon an appraiser’s ability to determine either a stabilized income stream or to prepare a reasonable forecast based upon historical performances, current market conditions and projected future market conditions. Understanding the difference between business and real estate valuation methods can be useful for healthcare leaders who are seeking to enter into transactions that involve hospital businesses and/or their real estate.
Business valuations utilize EBITDA (earnings before interest, taxes, depreciation and amortization) as a key format metric to determine value. An appraiser’s ability to either determine a stabilized level of EBITDA or a reasonable forecast of EBITDA then allows for the application of a market-derived multiple or a discounted cash flow analysis in order to determine a supportable determination of value.