Business valuation estimator
What a business might be worth as a whole and to its shareholders, from multiples of its earnings and, in Professional mode, from the cash it is expected to generate.
Results
A worked example from the inputs shown. With JavaScript switched on, the results change as you change the inputs.
Equity value, at the middle multiple
$4,200,000
What the shares are worth: enterprise value $5.4m less $1.2m of debt, cash and adjustments
Enterprise value, middle multiple
$5,400,000
4.5x EBITDA of $1,200,000
Equity value, low to high multiple
$3m to $5.4m
3.5x to 5.5x EBITDA
Cash less debt and adjustments
−$1,200,000
Added to enterprise value to reach equity value
EBITDA margin
15.0%
EBITDA $1.2m on revenue of $8m
Net debt to EBITDA
1.00x
Debt and debt-like items less cash, over EBITDA
Implied multiple of revenue
0.68x
Enterprise value at the middle multiple, over revenue
At 4.5x EBITDA of $1,200,000, the business as a whole is worth $5,400,000. After net debt and adjustments of $1,200,000, the shares are worth about $4,200,000.
Across the multiples entered, from 3.5x to 5.5x, the equity value runs from $3,000,000 to $5,400,000. Each full turn of the multiple is worth $1,200,000, a year of EBITDA, so the multiple agreed matters as much as the earnings it is applied to.
A valuation is a range, not a number. What a buyer pays depends on the risks it sees, the business's prospects, the terms of the deal and how many buyers there are.
Each bar runs from the low to the high multiple. The line marks the middle.
Show the figures
| Low | Middle | High | |
|---|---|---|---|
| EBITDA 3.5x to 5.5x | $3m | $4.2m | $5.4m |
Show the figures
| Amount | |
|---|---|
| Enterprise value | $5.4m |
| Borrowings | −$1.5m |
| Cash | $300k |
| Equity value | $4.2m |
Scenarios
Keep the base case and try other assumptions beside it. Each scenario starts from the base case and keeps only the inputs you change in it.
Value by method
| Method | Earnings or revenue | Multiple | Enterprise value | Equity value |
|---|---|---|---|---|
| EBITDA, low | $1,200,000 | 3.5x | $4,200,000 | $3,000,000 |
| EBITDA, middle | $1,200,000 | 4.5x | $5,400,000 | $4,200,000 |
| EBITDA, high | $1,200,000 | 5.5x | $6,600,000 | $5,400,000 |
From enterprise value to equity value
| Amount | |
|---|---|
| Enterprise value, middle multiple | $5,400,000 |
| Less borrowings | −$1,500,000 |
| Less debt-like items | $0 |
| Plus cash | $300,000 |
| Plus assets the business does not need | $0 |
| Less liabilities unrelated to trading | $0 |
| Working capital above (or below) normal | $0 |
| Equity value | $4,200,000 |
The full schedule, repayment by repayment, is in the downloads.
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The inputs, results and schedules of the scenario on screen. Files are made in your browser; nothing is sent anywhere.
What it does
Most private businesses are priced as a multiple of their earnings. The estimator applies a low, middle and high multiple to EBITDA to give a range of enterprise values: what the business is worth before its debt and cash. It then works from enterprise value to equity value, the value of the shares, by taking off debt and adding cash the business does not need.
Professional mode adds multiples of EBIT and of revenue, the adjustments a sale agreement can make for debt-like items, surplus assets and working capital, and a discounted cash flow valuation with its sensitivity to the discount rate and to growth after the forecast.
Understanding your results
- Enterprise value
- The value of the business's operations, whatever the mix of debt and equity that funds them. A multiple of EBITDA gives enterprise value, because EBITDA is earned for lenders and shareholders alike.
- Equity value
- What the shares are worth: enterprise value less borrowings and debt-like items, plus cash the business does not need and other adjustments. A buyer who pays the enterprise value for a business with debt is paying partly to repay that debt.
- The multiple
- A price for each dollar of earnings. It carries the risk and growth a buyer sees: steady earnings spread across many customers usually command more than earnings that depend on one customer or one person. Each turn of the multiple is worth a full year of EBITDA, which is why the multiple agreed matters as much as the earnings.
- Discounted cash flow
- The value today of the free cash flow the business is forecast to produce, discounted at a rate for its risk, plus the value of everything after the forecast. That last part is often most of the total, so the result is only as sound as the long-term assumptions behind it.
- The chart of methods
- Each method's range side by side. Where they disagree, the gap is useful in itself: it shows which assumptions carry the value.
The method
How this is calculated
Multiples. For each measure, at the low, middle and high multiple:
Enterprise value = multiple × EBITDA (or EBIT, or revenue)
Equity value = enterprise value − borrowings − debt-like items + cash
+ assets not needed − liabilities unrelated to trading
+ (working capital at completion − normal working capital)
Discounted cash flow. Revenue grows at the rate entered from this year's figure. For each forecast year t:
EBITDA = margin × revenue
EBIT = EBITDA − depreciation and amortisation
Free cash flow = EBIT − tax on EBIT + depreciation − capital spending − extra working capital
Value today = free cash flow ÷ (1 + WACC)^t
After the last forecast year N, the value is either growth for ever, FCFN × (1 + g) ÷ (WACC − g), or a sale at a multiple of year N's EBITDA. Either is discounted back from the end of year N. With mid-year discounting, each year's cash flow and the growth value are discounted half a year less, as if the cash arrived through the year. Tax is charged only when EBIT is above zero.
When growth after the forecast is not below the discount rate, growth for ever has no finite value, and the tool shows none rather than a meaningless figure. The sensitivity table repeats the valuation with the discount rate one and two points either side, and growth (or the exit multiple) half a step and a step either side.
Figures are before personal tax and exclude GST. See How the tools work.
Assumptions and limitations
The defaults are an illustration: a business with $8 million of revenue and $1.2 million of EBITDA, valued at 3.5 to 5.5 times EBITDA, with $1.5 million of borrowings and $300,000 of cash. They are our assumptions, not a view of what this or any business is worth, and not a survey of the multiples buyers pay.
The estimator does not normalise earnings for you. Before a multiple is applied, earnings are usually adjusted for one-off items, owners paid more or less than a market wage, and related party arrangements such as rent paid to an owner. It does not value tax losses or intangible assets separately, and it does not price the terms of a deal, such as an earn-out or seller finance, which change what a headline price is really worth.
A valuation that others will rely on, for tax, a family law matter, a dispute or a transaction, needs a qualified valuer. This is general information, not financial, tax or valuation advice.
Learn more
- Bringing in an investor: the records, structures and questions that make selling part of a business faster and fairer, from the investor's side of the table.
- Beyond the balance sheet: what we look for in a business, beyond its accounts.
- The acquisition funding planner, to see how a price would be funded and whether the business can carry the debt.
- The investment return analyser, for the return on a price paid.