Business Valuation Calculator
Why is it important to know the value of your business?
As a business owner, a business valuation provides multiple facts and figures regarding the actual value of your company, not just where your company is today, but more importantly, where it’s going in the future. It creates a better understanding of your company assets, which provides an accurate valuation of the business. This is also helpful in determining the true resale value of your company on the open market. This valuation goes beyond stock market and total asset value to give a true value of a company as a whole. The 3 methods below are simple calculators, and while they don’t take into account all the factors that contribute to the value (or lack of value) for your business, they can be used to establish a guideline. Establishing the valuation of your business allows you to increase your company’s value by comparing previous valuations and setting new goals to take you to the next level.
Valuation Methods
P/E Method
The price to earnings ratio (P/E Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. P/E ratio shows current investor demand for a company share. A high P/E ratio generally indicates increased demand because investors anticipate earnings growth in the future. Typically, P/E method is used for public companies, however, a private company can estimate their value by using a P/E Ratio of a company that does similar business.
Berkus Method
This method, which is used and defined by active angel investor David Berkus, involves a lot of estimation. The reason Berkus came up with the method is that he personally found that lengthy revenue forecasts rarely turned out to be accurate. According to Berkus, only 1 in 20 startups hit revenue forecasts, so he opted for an “eyeball” approach using a few key elements. The method applies best to technology companies, but can be applied to other products.
Precedent/Metric
Use a metric like number of Users/Profit/Revenue and compare to the value of a public company to get a relative value (Use Market Cap as their value). Precedent transaction analysis is a valuation method in which the price paid for similar companies in the past is considered an indicator of a company’s value. Precedent transaction analysis creates an estimate of what a share of stock would be worth in the case of an acquisition.
Why is it important to know the value of your business?
As a business owner, a business valuation provides multiple facts and figures regarding the actual value of your company, not just where your company is today, but more importantly, where it’s going in the future. It creates a better understanding of your company assets, which provides an accurate valuation of the business. This is also helpful in determining the true resale value of your company on the open market. This valuation goes beyond stock market and total asset value to give a true value of a company as a whole. The 3 methods below are simple calculators, and while they don’t take into account all the factors that contribute to the value (or lack of value) for your business, they can be used to establish a guideline. Establishing the valuation of your business allows you to increase your company’s value by comparing previous valuations and setting new goals to take you to the next level.
Valuation Methods
P/E Method
The price to earnings ratio (P/E Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. P/E ratio shows current investor demand for a company share. A high P/E ratio generally indicates increased demand because investors anticipate earnings growth in the future. Typically, P/E method is used for public companies, however, a private company can estimate their value by using a P/E Ratio of a company that does similar business.
Berkus Method
This method, which is used and defined by active angel investor David Berkus, involves a lot of estimation. The reason Berkus came up with the method is that he personally found that lengthy revenue forecasts rarely turned out to be accurate. According to Berkus, only 1 in 20 startups hit revenue forecasts, so he opted for an “eyeball” approach using a few key elements. The method applies best to technology companies, but can be applied to other products.
Precedent/Metric
Use a metric like number of Users/Profit/Revenue and compare to the value of a public company to get a relative value (Use Market Cap as their value). Precedent transaction analysis is a valuation method in which the price paid for similar companies in the past is considered an indicator of a company’s value. Precedent transaction analysis creates an estimate of what a share of stock would be worth in the case of an acquisition.