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There are many approaches that can be applied to valuing an aviation business. Which one, or what combination of approaches are best to determine the value of a specific company is dependent on a number of factors. All of the approaches to valuing a business fall into three general categories: asset, income and market approaches.
Key to the asset approach of valuing an aviation is business are the company's assets. Typically, the asset approach is used when a business is asset intensive, meaning that there are a lot of assets in the company, and usually these assets are integral to the operation of the business. Examples might include a firm that manufactures aircraft parts, a charter company that owns most of its aircraft fleet, or an FBO that owns the land it is on and the buildings out of which it operates.
The market approach to valuing an aviation business involves comparing it with others with similar characteristics---types and levels of revenue, net income, and asset bases, for example---that have sold Based on how your aviation company compares with others, it is possible to evaluate if your company would be valued higher or lower than the comparatives and assess the value based on that determination.
Discounted cash flow, or "DCF" is one of the methodologies that can be applied to valuing an aviation business. Essentially the opposite of capitalization, discounting involves applying a discount rate to an economic benefit stream.
The income approach, which as its name implies, is focused on the income that the business generates, is the second approach of three general approaches to valuing an aviation business. Income approaches primarily fall into two general categories: capitalization and discounting. The first of these, capitalization, involves dividing the expected economic benefit of the business by a capitalization rate.
Those of us in the aviation world frequently hear the term "fair market value" used with respect to aircraft. But what does it really mean when applied to an aviation business?
Quite often the question is asked, "What kind of multiple would you give to my business?" The correct answer to that question is, "It really depends." Although many would like to make overall generalizations, every business is different and there is much that needs to be considered.
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