You need to evaluate the business which you are about to purchase. There are several techniques to use.
Discounted cash flow analysis includes Net Present Value (NPV) and Internal Rate of Return (IRR). Both of these are important financial analysis tools that are used by more sophisticated buyers of businesses
The estimated cash stream
The analysis starts with the cash flow and is stated in investment terms. Revenue, expenses, profits, assets and liabilities are not included in the analysis. The analysis can even ignores the company’s cash flow and will ignore this unless there is a distribution such as a dividend from the company.
This analysis is from investor’s point of view. There is only one cash flow into the company which matters, the total investment. There are only two items which flow back out as returns, dividends and the cash on the sale of the business.