Business valuation and the magic formula
There is NOT one magic formula available that will determine the value of a business.
In business valuation, there are both financial & non-financial aspects that need to be considered.
Understanding the different basis of valuation, Asset Basis, Income Basis, Market Basis
Under these approaches, there are numerous Methods of Valuation such as Discounted Cash flow, Excess Earnings, Capitalisation of FME, Industry Rules of thumb methods like Multiple of Turnover.
Also an understanding that earnings can be represented in numerous ways
EBITDA- earnings before interest tax depreciation and amortisation
EBIT- earnings before interest and tax
NPAT- net profit after tax
PEBITDA- proprietors earnings before interest tax depreciation and amortisation
ROI- return on investment
Knowing the appropriate small business valuation formula to apply for each particular business is critical as inappropriate use of the wrong small business valuation formula can result in an inaccurate valuation of the business.
Cornerstone Business Sales & Valuations have experience in SME valuations.