Strategic Acquisition: A smarter way to grow a company by Gary Schine & David Annis

Author:Gary Schine & David Annis
Language: eng
Format: mobi
Publisher: Sandra Publications
Published: 2015-04-13T14:00:00+00:00

The Earnings Multiplier

There are a number of factors that will have impact upon the future of a business. The factors that are generally considered for valuation purposes are competitiveness, the industry as a whole, risk, the performance of the firm being valuated relative to the industry, industry and company growth projections, location, and the desirability or appeal of the business. Each of these factors is rated on a scale of 1 to 6. A higher number means a better rating, with 6 as the best and 1 as the worst. Ratings are based largely upon subjective judgment, upon industry projections, and upon industry performance statistics. All the items used in setting the multiplier are assigned a number separately; then all the numbers are averaged.

A warning here is that there is nothing cast in stone regarding the multiplier. Different people will have different opinions, not only about items like desirability, but also about the interpretation of projections, competitive strengths, and so on. Nevertheless, using a system like this to determine the multiplier does make the valuation process more objective, and provides some criteria based rationale for setting a value and ultimately for defending the reasonableness of an offering price.

We have developed an online business valuation calculator that uses the excess earnings method of valuation. You’ll just need to answer some financial and non-financials questions, and the application produces an estimated business valuation. The basic valuation is free and the site allows you to order a low priced downloadable report. www.ezvaluation.com.

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