What is one type of premise of value recognized in business valuation?

The premise of value known as "going concern" is a foundational concept in business valuation, reflecting the assumption that a business will continue its operations into the foreseeable future. This premise is essential for most valuation approaches, as it affects the determination of cash flows, risk assessment, and the overall value of the business.

When valuing a business under the going concern premise, the evaluator considers the company's ability to generate profits and cash flows in the normal course of business, which fundamentally influences valuation methods such as the income approach. This approach often involves forecasting future cash flows and discounting them to present value, relying on the assumption that the business will continue to operate effectively without immediate threat of liquidation.

In contrast, other premises of value, such as liquidation or market value, may apply to situations where the business is not expected to continue operating in the same capacity or where the emphasis is on market conditions rather than the business's operational viability. Thus, recognizing the going concern premise is vital for providing an accurate and realistic assessment of a business's value.