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| ==Determining Value==
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| Let's say that you want to start a business, and you decide to open a restaurant. You go out and buy a building, buy all the kitchen equipment, tables and chairs that you need, buy your supplies and hire your cooks, servers, etc. You advertise and open your doors.
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| Let's say that:
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| *You spend $500,000 buying the building and the equipment.
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| *In the first year, you spend $250,000 on supplies, food and the payroll for your employees.
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| *At the end of your first year, you add up all of the money you have received from customers and find that your total '''income''' is $300,000.
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| Since you have made $300,000 and paid out the $250,000 for expenses, your net profit is:
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| <center><b>$300,000 (income) - $250,000 (expense) = $50,000 (profit) </b></center>
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| At the end of the second year, you bring in $325,000 and your expenses remain the same, for a net profit of $75,000. At this point, you decide that you want to sell the business. What is it worth?
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| One way to look at it is to say that the business is "worth" $500,000. If you close the restaurant, you can sell the building, the equipment and everything else and get $500,000. This is a simplification, of course -- the building probably went up in value, and the equipment went down because it is now used. Let's just say that things balance out to $500,000. This is the asset value, or book value, of the business -- the value of all of the business's assets if you sold them outright today.
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| But what if you keep it going?
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