How to use the business valuation calculator
- Choose a method: Earnings multiple, Revenue multiple, Asset based or Discounted cash flow.
- Enter the numbers for that method. The multiples, growth and discount rates start as labeled examples, so replace them with figures that fit your business and industry.
- For the multiple and cash flow methods, enter any debt to subtract and cash to add, to move from the value of the business to the value of the owner's equity.
- Read the estimate, the low and high range, and the steps. Print the result or save the cash flow table as a CSV file.
Formula
Earnings or revenue method: value before debt and cash = yearly earnings (or revenue) x multiple
Equity value = value before debt and cash - debt + cash
Asset method: net asset value = assets at fair market value - liabilities
Cash flow method: value = sum of CF(t) / (1 + r)^t for each year + terminal value / (1 + r)^N, where terminal value = CF(N) x (1 + g) / (r - g)
CF(t) is the cash flow in year t, r is the discount rate, g is the growth rate after the last year and N is the number of years projected.
Worked examples
Yearly earnings of $100,000 at a multiple of 3 give $300,000 before debt and cash. With $50,000 of debt and $20,000 of cash the equity value is $270,000. With a range of plus or minus 0.5, multiples of 2.5 and 3.5 give $220,000 and $320,000 after the same adjustments. Revenue of $500,000 at 0.8 is $400,000, and assets of $250,000 less $100,000 of liabilities is $150,000.
For the cash flow method, a first-year cash flow of $100,000 growing 5% a year for 5 years, a 12% discount rate and 2% growth after the last year gives yearly present values of $89,285.71, $83,705.36, $78,473.77, $73,569.16 and $68,971.09, a total of $394,005.09. The value after year 5 is $1,239,816.38 in year 5 dollars, or $703,505.11 today, so the business is worth $1,097,510.20. A 13% rate gives $995,854.75 and an 11% rate gives $1,221,837.99. All were checked with a separate decimal calculation.
Choosing a method
An earnings multiple is common for small, profitable businesses: the earnings figure is the profit an owner could take out, such as seller discretionary earnings or EBITDA, and the multiple reflects how many years of that profit a buyer might pay for. A revenue multiple is sometimes used when profits are small or uneven, but it ignores costs. The asset approach adds up what the business owns and subtracts what it owes, which suits a business whose value is mostly equipment, inventory or property.
The cash flow method estimates what future cash is worth today by discounting it at a rate that reflects risk. It is sensitive to its inputs, especially the discount rate and the growth after the last year, which is why the tool also shows the value one percentage point above and below your rate. Compare methods and keep the range in mind rather than relying on one number.
What this estimate leaves out
No multiple or rate on this page is a market figure. They are examples that you replace with your own. Real valuations look at the quality of earnings, customer concentration, the owner's role, growth, contracts, the terms of a sale, taxes and market conditions, and a professional appraiser or broker can do that work. Use this page for planning, to prepare for a conversation or to compare scenarios.
Nothing is sent from your browser. Related tools include the return on investment calculator, the profit margin calculator, the WACC calculator and the equity dilution calculator.
Assumptions and limits
- Multiples, growth, discount and terminal growth rates are labeled examples. Use figures that suit your industry and risk.
- Cash flow after year 1 grows at one constant rate for the number of years you choose, from 1 to 30.
- The terminal growth rate must be below the discount rate, or the value is not defined.
- Taxes, transaction costs, working capital needs and the terms of a sale are not modeled.
Frequently asked questions
What multiple should I use for my business?
There is no single answer. Multiples depend on the industry, size, growth and risk of the business. The example number on this page is only a starting point, so look at sales of similar businesses or ask a broker.
What is the difference between enterprise value and equity value?
The value before debt and cash is the value of the business operations. Subtracting debt and adding cash gives the value that belongs to the owners, which is the equity value and usually what a seller receives.
Why does the cash flow value change so much with the discount rate?
Most of the value often sits in the years after the projection, and that part is very sensitive to the rate. The tool shows the result one percentage point above and below your rate so you can see the spread.
Is this the same as a professional business appraisal?
No. It is a planning estimate based on numbers you provide. A formal appraisal examines the business in detail and follows professional standards, which this page does not claim to do.