Businesses For Sale – Evaluation

Business valuations are determined by two key factors: The cash flow and the multiple.
The cash flow is the “real” income, the one that the company is able to acquire. To get this value we subtract from the business income a few expenses that do not represent real connection to the company itself, due to high variability or are very specific to the way the company is being managed, like depreciation, owner’s compensation, etc.

The multiple is even more important. It’s similar to the idea of Price-Earnings Ratio or Earnings Multiple. This number represents how much each cent of the business is worth, as it basically shows the expecting growth for that company in the future. A high multiple means that this business will grow quite well, in comparison to one with a low multiple. Keep in mind that the range of these multiples will float depending on the type of business (a technology company will always have higher multipliers than a utilities one, for instance).

Posted on by alex in Uncategorized

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