Business

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.