The lowest weight was assigned to the book value method (because it is the least representative, in almost all cases, of the true value of a firm) with equal weights going to the remaining three. With four different estimated values, a weight is applied to each to come up with the overall estimated value. It's also simple to grasp: How much cash have you generated and how much will you generate in the future? The more consistent and predictable your cash flows are in your business model, the higher the value of your business. LetвЂ™s assume this method finds an estimated value of $11 million.Д¬ash flow is the single greatest determinant in the value of your business. This method derives the cash flow the company will produce into perpetuity, if applicable, and then discounts those cash flows back into todayвЂ™s dollars (also referred to as net present value (NPV)). While the first three methods described focus mostly or entirely on historical performance, the discounted cash flow method is almost solely-driven by the projected performance of the firm into the long-term. LetвЂ™s assume we derive a value of $8.5 million for our example. By looking at the multiples of LTM and NTM revenue and EBITDA for recent transactions and applying those multiples to your business, you would arrive at the estimated value based on this method.

The next approach for valuation follows a process similar to the publicly-traded comparable example above, only the focus is on recent transactions. Then, the expert would determine a weighted average for the four different estimates and arrive at a valuation of between $8 and $10.8 million for this method. This method usually looks at the last twelve months (commonly referred to as LTM) and next twelve months (NTM) of revenue and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA):ДЄ valuation expert would input your companyвЂ™s performance and projected performance next to the average multiples in each category and come up with an estimated value in each category. This provides a basis for determining the value of your company, particularly when compared to companies similar to yours. The public stock markets assess valuation to every companyвЂ™s shares being traded.

For our example, letвЂ™s assume your companyвЂ™s book value comes to $2,000,000. While there are many flaws to this approach, it is still commonly employed by valuation experts, although it is usually given a very small weight relative to the other methods. This focuses entirely on the balance sheet and the book value of assets minus any relevant liabilities. The simplest, and usually least accurate, of the valuation methods is book value. Not only do owners and executives of privately-held businesses often wonder about the worth of their enterprises, they also have lots of other questions, too-like what they can do to improve the value of their business.Дetermining the value of a business can be broken down into four common methodologies for systematically deriving worth.

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