Evaluating a company takes many forms including whether the company is environmentally aware or green, its treatment of its employees and relationships and contributions to the business community. However, a small business person would be more likely to view "company evaluation" to mean evaluating the company in terms of how much its worth or its valuation.

Publicly-traded companies are valued at how many shares are outstanding and the price of the shares. The value of each share is determined by the market, or how much a willing owner would sell it to a willing buyer. The value of a public company changes daily for some and remains relatively steady for others. The value of a company issuing their IPO -- Initial Public Offering -- can change substantially immediately after the offering. The price of the shares, and therefore the value, is affected by forces outside the company that affect the general business environment, such as unemployment rates, major political events and even the actions of other countries.

A simple way to look at the value of a privately owned company is to subtract the liabilities from the assets. What remains is the net worth or value of the company. Assets include cash, bonds, notes, receivable, inventory, accounts receivable, buildings, land, furniture, fixtures and vehicles and equipment. Also included are intangible assets such as patents, intellectual property, trade secrets, customers lists and good will. Liabilities include mortgages, notes payable, revolving credit lines, loans, accounts payable and any outstanding obligation such as unfilled orders, unperformed services or maintenance contracts that have been paid for. A buyer will usually discount assets that are less liquid, such as accounts receivable, or difficult to assign a monetary value, such as intellectual property.

When a small business owner must sell the company in an emergency, the value is more of a liquidation or going out of business value. This value is what a lending institution may assign to the business for lending purposes. The lender is not interested in running the business, but rather what the assets less liabilities would bring in case the business defaults on the loan.

Companies make money, or at least that's the hope of most business owners. That earning potential becomes part of the evaluation of what the company is worth. It's usually based on the cash flow of the company -- income with depreciation and other non-cash expenses added back. The income is based on what the business has generated historically. The business owner would prefer to see the future income at a higher level, while a potential buyer would like a lesser rate. The income is discounted to take in the time value of money. A dollar today is worth more than a dollar in the future, because the dollar today can be invested.

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