Generally, the multiple used is about four to six times EBITDA.
However, prospective buyers and investors will push for a lower valuation — for instance, by using an average of the company’s EBITDA over the past few years as a base number.
How do you value a company using Ebitda?
To Determine the Enterprise Value and EBITDA:
- Enterprise Value = (market capitalization + value of debt + minority interest + preferred shares) – (cash and cash equivalents)
- EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization.
How many times profit is a business worth?
Businesses are usually valued at a multiple of their revenue, so a good rule of thumb is to sell your business for two or three times its annual profit.
What is the rule of thumb for valuing a business?
Use price multiples to estimate the value of the business.
Another valuation rule of thumb is using price multiples, which base the value of the business on a multiple of its potential earnings. For example, nationally the average business sells for around 0.6 times its annual revenue.
How do you value a business?
Value = Earnings after tax × P/E ratio. Once you’ve decided on the appropriate P/E ratio to use, you multiply the business’s most recent profits after tax by this figure. For example, using a P/E ratio of 6 for a business with post-tax profits of £100,000 gives a business valuation of £600,000.