Estimate your business worth using common valuation methods.
Understanding Business Valuation
Determining the worth of a business, often referred to as business valuation, is a crucial process for various reasons:
selling the business, seeking investment, mergers and acquisitions, estate planning, or simply understanding your company's financial health.
There isn't a single, definitive formula; instead, several methods are commonly used, each providing a different perspective.
This calculator uses a combination of common approaches to give you an estimated range.
Key Valuation Methods Used:
1. Income Approach (Based on Earnings):
This is one of the most common approaches, focusing on the business's ability to generate future income.
We use two variations here:
Earnings Multiplier Method: This method relates the business's earnings to a market-based multiplier.
A common metric used is EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
The formula here simplifies this by using Net Profit (Revenue * Net Profit Margin) and applying a given multiplier.
The multiplier often reflects industry norms, growth prospects, and risk.
Estimated Worth (Earnings) = Annual Revenue * (Net Profit Margin / 100) * EBITDA Multiplier
Asset-Based Valuation (Net Asset Value): This method looks at the tangible and intangible assets of the business minus its liabilities. It's often considered a "floor" valuation, as it represents what the business would be worth if its assets were sold off.
Estimated Worth (Assets) = Total Asset Value - Total Liability Value
How the Calculator Works:
This calculator takes your provided inputs and calculates two primary estimates:
Earnings-Based Value: Calculated by multiplying your business's net profit (derived from annual revenue and net profit margin) by the EBITDA multiplier you input. This reflects the business's earning power.
Net Asset Value: Calculated by subtracting your total liabilities from your total asset value. This represents the book value of the business.
The final displayed value is a weighted average of these two methods, giving more prominence to the earnings-based valuation as it's often more indicative of a going concern.
The weights are typically 70% for the earnings-based value and 30% for the net asset value, reflecting common market practices where future earning potential is highly valued.
Interpreting the Results:
The valuation is an estimate. The actual worth can vary significantly based on:
Industry Trends: Different industries have different multiples and risk profiles.
Market Conditions: Economic climate impacts buyer demand and willingness to pay.
Growth Potential: Businesses with strong future growth prospects are valued higher.
Management Team: The quality and experience of the leadership team.
Customer Base: Diversification and loyalty of customers.
Intangible Assets: Brand reputation, intellectual property, patents, etc., which are harder to quantify.
It is highly recommended to consult with a professional business valuator or financial advisor for a comprehensive and accurate assessment.
function calculateBusinessWorth() {
var annualRevenue = parseFloat(document.getElementById("annualRevenue").value);
var netProfitMargin = parseFloat(document.getElementById("netProfitMargin").value);
var ebitdaMultiplier = parseFloat(document.getElementById("ebitdaMultiplier").value);
var assetValue = parseFloat(document.getElementById("assetValue").value);
var liabilityValue = parseFloat(document.getElementById("liabilityValue").value);
var resultDiv = document.getElementById("result");
resultDiv.style.display = 'block'; // Make sure the div is visible
// Input validation
if (isNaN(annualRevenue) || isNaN(netProfitMargin) || isNaN(ebitdaMultiplier) || isNaN(assetValue) || isNaN(liabilityValue)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = "#dc3545"; // Error color
return;
}
if (annualRevenue < 0 || netProfitMargin < 0 || ebitdaMultiplier < 0 || assetValue < 0 || liabilityValue < 0) {
resultDiv.innerHTML = "Values cannot be negative.";
resultDiv.style.backgroundColor = "#dc3545"; // Error color
return;
}
// Calculations
var netProfit = annualRevenue * (netProfitMargin / 100);
var earningsBasedValue = netProfit * ebitdaMultiplier;
var netAssetValue = assetValue – liabilityValue;
// Weighted average calculation (common practice: 70% earnings, 30% assets)
var weightedAverageValue = (earningsBasedValue * 0.7) + (netAssetValue * 0.3);
// Ensure the weighted average is not negative if net asset value is very low
if (weightedAverageValue < 0) {
weightedAverageValue = 0; // Or decide to show netAssetValue if it's less negative
}
// Format currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
resultDiv.innerHTML = formatter.format(weightedAverageValue) +
"(Estimated Business Worth)";
resultDiv.style.backgroundColor = "var(–success-green)"; // Reset to success color
}