Determining the value of a company is a critical process for investors, business owners, and financial professionals. It informs investment decisions, M&A (Mergers & Acquisitions) activities, fundraising, and strategic planning. There isn't one single "correct" valuation, but rather a range of estimates based on different methodologies. This calculator provides estimates using two common approaches: the Market Multiple method (specifically using EBITDA) and a simplified Discounted Cash Flow (DCF) model.
1. Market Multiple (EBITDA Multiple) Method
This method is based on the principle that similar companies in the same industry should trade at similar multiples of their financial performance metrics. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a commonly used metric as it represents a company's operational profitability before accounting for financing and non-operational expenses.
*Note: For simplicity in this calculator, we directly use Net Profit Margin to derive profit, and then use a common industry multiple on revenue-adjacent metrics or a simplified Earnings Multiple if specific EBITDA data isn't directly input. A more robust EBITDA calculation requires depreciation and amortization figures. This simplified approach assumes a correlation.*
A more common application for multiples involves EBITDA. If you have EBITDA, the formula would be:
Company Valuation = EBITDA * Industry EBITDA Multiple
Since we are not directly inputting EBITDA, we are using a simplified interpretation of multiples based on revenue and profit. For instance, if a company has $1,000,000 in revenue and a 15% net profit margin, its net profit is $150,000. If the industry average Price-to-Earnings (P/E) multiple is 10x, the valuation would be $150,000 * 10 = $1,500,000. This calculator uses a blended approach or a direct Earnings multiple if the user provides a generic "EBITDA Multiple" that is often used as a proxy for earnings multiples in simpler valuations.
2. Discounted Cash Flow (DCF) Method
The DCF method values a company based on its expected future free cash flows. It estimates the cash a company will generate in the future and discounts it back to the present value using a discount rate that reflects the riskiness of those cash flows. This approach is theoretically sound but relies heavily on future projections.
A simplified DCF calculation for the first few years and a terminal value:
Projected Cash Flows: Estimate the Free Cash Flow (FCF) for a specific period (e.g., 3-5 years).
Terminal Value: Estimate the value of the company beyond the projection period. A common method is the Gordon Growth Model:
Present Value of Cash Flows: Discount each projected FCF back to the present:
PV(FCFt) = FCFt / (1 + Discount Rate)t
Where 't' is the year.
Present Value of Terminal Value: Discount the Terminal Value back to the present.
Total Valuation: Sum the present values of all projected cash flows and the present value of the terminal value.
Total Valuation = Sum[PV(FCFt)] + PV(Terminal Value)
*Note: This calculator uses a simplified DCF for the first 3 years and a terminal value calculation. It assumes the Discount Rate and Terminal Growth Rate are expressed as percentages.*
These methods provide different perspectives. The market multiple method is quicker and market-based, while DCF is more intrinsic and forward-looking. A comprehensive valuation often involves using multiple methods and arriving at a valuation range.
function calculateValuation() {
var annualRevenue = parseFloat(document.getElementById("annualRevenue").value);
var netProfitMargin = parseFloat(document.getElementById("netProfitMargin").value);
var ebitdaMultiple = parseFloat(document.getElementById("ebitdaMultiple").value);
var discountRate = parseFloat(document.getElementById("discountRate").value);
var terminalGrowthRate = parseFloat(document.getElementById("terminalGrowthRate").value);
var projectedCashFlow1 = parseFloat(document.getElementById("projectedCashFlow1").value);
var projectedCashFlow2 = parseFloat(document.getElementById("projectedCashFlow2").value);
var projectedCashFlow3 = parseFloat(document.getElementById("projectedCashFlow3").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
var marketValuation = NaN;
var dcfValuation = NaN;
var finalOutput = "
Valuation Estimates
";
// — Market Multiple Method (Simplified) —
if (!isNaN(annualRevenue) && !isNaN(netProfitMargin) && !isNaN(ebitdaMultiple)) {
var netProfit = annualRevenue * (netProfitMargin / 100);
// Using EBITDA multiple as a proxy for earnings multiple for this simplified example
marketValuation = netProfit * ebitdaMultiple;
finalOutput += "Market Multiple Estimate (based on Net Profit): $" + marketValuation.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + "";
} else {
finalOutput += "Market Multiple Estimate: Input all required fields (Annual Revenue, Net Profit Margin, Industry Multiple).";
}
// — Discounted Cash Flow (DCF) Method —
if (!isNaN(projectedCashFlow1) && !isNaN(projectedCashFlow2) && !isNaN(projectedCashFlow3) && !isNaN(discountRate) && !isNaN(terminalGrowthRate)) {
var dr = discountRate / 100;
var tgr = terminalGrowthRate / 100;
if (dr <= tgr) {
finalOutput += "DCF Estimate: Discount Rate must be greater than Terminal Growth Rate.";
} else {
// Present Value of Projected Cash Flows
var pvCF1 = projectedCashFlow1 / Math.pow(1 + dr, 1);
var pvCF2 = projectedCashFlow2 / Math.pow(1 + dr, 2);
var pvCF3 = projectedCashFlow3 / Math.pow(1 + dr, 3);
// Terminal Value Calculation (Gordon Growth Model)
var terminalValue = (projectedCashFlow3 * (1 + tgr)) / (dr – tgr);
// Present Value of Terminal Value
var pvTerminalValue = terminalValue / Math.pow(1 + dr, 3);
// Total DCF Valuation
dcfValuation = pvCF1 + pvCF2 + pvCF3 + pvTerminalValue;
finalOutput += "DCF Estimate: $" + dcfValuation.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + "";
}
} else {
finalOutput += "DCF Estimate: Input all required fields (Projected Cash Flows, Discount Rate, Terminal Growth Rate).";
}
if (isNaN(marketValuation) && isNaN(dcfValuation)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
} else {
resultDiv.innerHTML = finalOutput;
}
}