A common measure of a business’s value is which of the following?

• A. Total annual sales
• B. Market capitalization
• C. Net cash outflows
• D. Total liabilities

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'business value': Business value refers to the worth of a company, often assessed using financial metrics that reflect its market position, profitability, and future potential.
2. Review the options provided: Total annual sales, Market capitalization, Net cash outflows, and Total liabilities. Each represents a different financial aspect of a business.
3. Clarify the term 'Market capitalization': Market capitalization is calculated as the total market value of a company's outstanding shares. It is determined using the formula: $\mathrm{Market}\mathrm{Capitalization}=\mathrm{Share}\mathrm{Price}\times \mathrm{Number}\mathrm{of}\mathrm{Shares}$. This is a common measure of a business's value in the stock market.
4. Compare the options: Total annual sales reflect revenue but do not account for profitability or market perception. Net cash outflows indicate cash movement but are not a direct measure of value. Total liabilities represent debt but do not capture the overall worth of the business.
5. Conclude that 'Market capitalization' is the correct answer because it provides a comprehensive and widely accepted measure of a business's value in financial markets.