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There are many reasons that you are looking to value your business, and each of them means that you are making great strides in your industry. Whether you are selling your business, looking for investors, planning to sell stock, looking for a loan, or wanting to get a clearer vision of your business’s present and future, finding the accurate value can come in many forms. Depending on how old your business is and what it has been involved with could change how you calculate the value. So, here are a few ways to keep in mind, as well as an ideal way to calculate your business’s value at the end. 

Look at It’s Market Capitalization

Utilizing the market capitalization calculation can be a simple yet effective way to find the value, but it is only effective when you have shares within your business. To calculate accurately, you multiply the total number of shares by the share price to get your market capitalization value. However, it is important to keep in mind that this valuation only considers equity and not debt or other assets, which can hinder the evaluation. 

Enterprise Value

Enterprise value is a step above market capitalization as it includes debt in the final calculation. By including debt, you get a view of investments by banks or bond investors, allowing you to see a whole other angle of your business. To calculate this valuation, you must combine your company’s debt and equity and then subtract the amount of cash not used to fund the business’s operations. Looking at these three areas rather than just one could get a more precise valuation. 

Calculate Discounted Cash Flows

This method of calculation is seen as the golden standard for figuring out the valuation of your business. This process estimates the value by considering the business’s cash flow and month and what it is expected to make in the future. It focuses on the present value of the future cash flow based on the rate and time period of the analysis. So, you would multiply the cost of capital plus one by an X amount of years in the future and then divide that by terminal cash flow. This is beneficial because it helps show the business’s ability to generate liquid assets. 

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. By calculating this number, you are able to take away the variables that could be clouding you from a proper evaluation. However, it can still lead to many questions on details and further evaluations within the company and should only be considered if you are an older business. 

The Best Way of All… 

Now, the best way to value your business appropriately is to seek out a professional who can help you calculate the valuation down to the penny, such as an investment bank. Using all of these calculations might get you a handful of different answers, and when you are in the midst of selling your business or looking for investors, you don’t want a fluid answer; you want a solid answer. Finding a partner who can not only help you evaluate your business but can also help you with your future goals in selling or investing can ensure you are working with the right numbers and taking the right steps for your business.

If you are trying to calculate your valuation, don’t do it alone; contact the team at ReVera Capital.