Business Valuation Calculator

The business valuation calculator helps you understand the process of performing a company valuation, guiding you through how to value a business with clarity. It offers a straightforward approach to answering crucial questions, such as:

• How are companies valued?
• How much is my business worth?
• How to value a business?
• How to calculate business valuation?

Our business valuation calculator is designed to determine the current value of a company at any given moment in its existence. It's a process that helps people understand the value of a company, whether it's a small shop or a large corporation.

Think of it as putting a price tag on a business, taking into account various metrics, from the money it makes to how many assets it has. This calculation helps owners, investors, and even buyers make informed decisions, such as setting a fair price for selling the business or determining if it's a good investment.

In the next section, we'll discuss various business valuation methods and how companies are valued. Keep reading to learn everything about this fascinating subject!

There are many ways to determine what a business is worth, but we've focused on 3 popular ones, each suited for various business sizes, ranging from the smallest to the largest public firms. Each method has a different business valuation formula. Make sure to familiarize yourself with all of them so you know how to calculate business valuation, and to learn how companies are valued. Let's break it down:

DCF valuation (discounted cash flow):

• How it works — This method looks at the cash you expect your business to make in the future and then calculates how much that cash is worth right now. It's like deciding if it's better to have a certain amount of money today or the same amount in the future.
• Best for — Businesses with predictable cash flows over the long term.
• Pros — Gives a clear value based on actual expected cash.
• Cons — Needs accurate future cash flow predictions, which can be tricky.

DCF valuation is calculated based on fixed annual cash flow, the number of years you expect to make that cash (projection period), a discount rate to adjust for future uncertainty, and a terminal value that estimates the business's worth beyond the projection period.

Asset-based baluation:

• How it works — This method adds up all the pieces of the business, like equipment, inventory, and real estate, to find out what the whole business is worth.
• Best for — Companies with significant physical assets.
• Pros — Simple and straightforward, based on assets.
• Cons — Can overlook the value of intangible assets like brand reputation or customer relationships.

Market capitalization valuation:

• How it works — For public companies, this method multiplies the current share price by the total number of shares.
• Best for — Publicly traded companies.
• Pros — Based on real-time market conditions, easy to calculate.
• Cons — Can be volatile, influenced by market sentiments and external factors.

Market-based valuation:

• How it works — Estimates value by applying industry multiples to a financial metric like EBITDA or revenue.
• Best for — Businesses with comparable industry data.
• Pros — Quick, simple, and based on real market values.
• Cons — Accuracy depends on finding the right comparables and multiples.

Each method has its strengths and weaknesses, suited for different business endeavors. The Market-based valuation method can be the best method to evaluate many businesses, but you need to check specific multiples to calculate the terminal value. Make sure to choose the correct multiple for your business.

If you're asking yourself, "How much is my business worth?" we're here to help. Our business valuation calculator is designed to guide you through the process step-by-step. Using various business valuation formulas for different business valuation methods, we can learn how to value a business and understand what a business valuation is. First things first, pick a valuation method. We begin with the DCF (discounted cash flow) method, but you can easily switch to an asset-based or market capitalization valuation approach if that better suits your needs.

Discounted cash flow (DCF) method:

• Cash flow — Enter your business's expected annual cash flow. Think of this as the money left after all expenses are paid, which you could take out of the company each year.
• Projection period — How many years ahead are you planning for? This field is where you tell us how long you expect those cash flows to continue.
• Discount rate — This is a bit like an interest rate, adjusting your future cash flows to today's value, accounting for risk and other factors.

Asset-based valuation:

• Assets — Add up everything your business owns that has value—property, equipment, inventory, you name it.
• Liabilities — Now, subtract what you owe, like loans or debts. The difference gives you the net value of your business.

Market capitalization:

• Outstanding shares — This is the total number of shares your company has out there in the hands of all shareholders.
• Stock price — Enter the current price of one share of your company's stock. Multiply this by the number of outstanding shares, and voilà, you've got your company's market value.

Market-based valuation

• Chosen financial metric — Enter EBITDA, revenue, or net profit to match the selected industry multiple, as this determines your business's estimated value.
• Industry multiple — Enter the suggested multiples, or do a quick online search for the most current multiple specific to your industry. Multiples help us figure out the business's worth based on industry norms.

Each step is designed to make the complex world of business valuation a little easier to navigate, and the business valuation is displayed at the top of our business valuation calculator. So, please take a deep breath, gather your numbers, and let's embark on this exciting journey to discover the value of your hard work.

Now that you know how to calculate business valuation for the four business valuation methods, let's go through some examples.

Let's walk through a practical example of using the DCF method to perform a business valuation, using a marketing agency as our case study. Imagine you're the owner, and you believe your agency will generate a steady annual cash flow of $100,000 for the next five years. Here's how to break it down in our calculator:

1. Cash flow — Input $100,000 as your expected annual cash flow. This figure represents the net amount of cash you predict the agency will generate each year, after all expenses are covered.
2. Projection period — Enter 5 for the number of years you expect to continue earning this annual cash flow. The length of this period reflects your confidence in the agency's ability to maintain its profitability. The longer the projection period, the better.
3. Discount rate — Set this to 5%. This rate adjusts your future cash flows to their present value, taking into account factors such as inflation and potential gains from alternative investments. In simpler terms, it reflects the diminishing value of future money in today's terms due to risks and missed opportunities.

After entering these values, the calculator does its magic. Adding it all up, the calculator estimates your marketing agency's present business valuation at approximately $511,300.

This figure represents the current valuation of your agency, based on its ability to generate future cash flows.

For an asset-based valuation, let's use a car rental business as an example.

1. Assets — Here, you'd start by totaling all the assets, including the value of the cars in the fleet, any cash in the bank, and other tangible assets, which all add up to $500,000.
2. Liabilities — For example, outstanding loans, debts, etc. Let's say they are totaling around $50,000.

The calculator then subtracts the liabilities from the assets to determine the business valuation. For this car rental business, after deducting liabilities from assets, you're left with a business valuation of $450,000. This simple equation provides a clear snapshot of the company's net worth, based on its physical and financial assets.

Using the market capitalization method, let's value a public company with 1 million shares, each priced at $14.52.

1. Outstanding shares — Simply input 1,000,000.
2. Stock price — Input price per stock, which is 14.52.

The calculator multiplies these figures. In our example, the business valuation equals $14,520,000, reflecting the total market worth of its shares. It's a quick snapshot of the company's value in the eyes of the stock market. Intrigued by these numbers? Check out our ROI calculator, perfect for evaluating investment opportunities.

Let's say you own a marketing agency and want to estimate its value using the multiples method.

1. Chosen financial metric — Input your agency's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). For example, if your agency's EBITDA is $150,000, enter 150,000.
2. Industry multiple — For a marketing agency, let's use 11.94 as the industry multiple at the time of writing this article. Please remember to check out the current multiple for your industry. This number helps estimate the business's value beyond the 5-year projection period, based on industry standards. It's a crucial part of our business valuation formula.

Once you input these values, the calculator will multiply $150,000 × 11.94, giving you an estimated business value of $1,791,000.