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8 Ways To Value A Company

8 Ways to Value a company

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34 views3 pages

8 Ways To Value A Company

8 Ways to Value a company

Uploaded by

sw21910
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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8 Ways to Value a company

1. DISCOUNTED CASH FLOWS (DCF)

• How it Works: Calculates the present value of an investment based on its expected
future cash flows.

• Formula: CF_1 / (1+r)^1 + CF_2 / (1+r)^2 + ... + CF_n / (1+r)^n (CF = Cash Flow, r
= discount rate, n = number of periods)

• Common Uses & Suitable Company Types: M&A, Corporate Finance, Investment
Banking

2. MARKET CAP

• How it Works: Values a company by multiplying its current share price by the total
number of outstanding shares.

• Formula: Share Price x Total Outstanding Shares

• Common Uses & Suitable Company Types: Publicly traded companies

3. COMPARABLE COMPANY ANALYSIS (CCA)

• How it Works: Compares the company's financial metrics to similar companies to


determine value.

• Formula: Based on multiples like P/E ratio, EBITDA, etc., specific to the industry.

• Common Uses & Suitable Company Types: Useful for valuing both public and private
companies, especially when comparable financial data is available.

4. PRECEDENT TRANSACTIONS

• How it Works: Analyzes prices paid for similar companies in past transactions.

• Formula: Valuation based on transaction multiples, adjusted for size, market, and
timing.

• Common Uses & Suitable Company Types: Used in M&A, particularly relevant for
investment banking and private equity.

5. EBITDA MULTIPLE

• How it Works: Applies a standard industry multiplier to a company's EBITDA.


• Formula: EBITDA x Industry Multiplier

• Common Uses & Suitable Company Types: Often used in industries where EBITDA is a
key performance metric.

6. BOOK VALUE

• How it Works: Based on the company's assets minus its liabilities as recorded on the
balance sheet.

• Formula: Total Assets - Total Liabilities

• Common Uses & Suitable Company Types: Relevant for asset-heavy companies, like
real estate or manufacturing.

7. 409A VALUATION

• How it Works: Determines the fair market value of a private company's common
stock.

• Formula: Utilizes various valuation methods, often DCF or CCA, adjusted for private
company specifics.

• Common Uses & Suitable Company Types: Crucial for startups and private companies
planning to offer stock options.

8. REVENUE MULTIPLIER (including ARR/MRR)

• How it Works: Applies a multiplier to a company's total or recurring revenue.

• Formula: Revenue x Revenue Multiplier

• Common Uses & Suitable Company Types: Particularly relevant for SaaS and
subscription-based business models.

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