Category Archives: Valuation

Revenue Quality

Revenue Quality: What Does it Really Mean?

Revenue quality is an area of focus for buyers and venture capital/private equity investors.  High revenue quality companies are valued higher than low quality revenue companies.  But what does this really mean and why is this? It is simply a question of risk.  High quality revenues reduce risk and therefore result in a higher valuation. What…

Normalization Adjustments

Normalization Adjustments to Arrive at Adjusted EBITDA for Private Companies

Adjusted EBITDA is becoming a more common term for public companies.  Companies are reporting adjusted EBITDA to convince analysts that reported income contains a number of one-time items that they should not be concerned  about. While controversial for public companies, “normalization adjustments” have always been a practice in the private company sales process, largely because…

EBITDA Multiple

A Multiple of What (and When)?

When you hear an owner of a similar business to yours saying  “I sold my business at a 10 times multiple!”? or … the tech sector is trading at a 25 multiple.  Early stage companies trade at 2 to 3 times.  The question is a multiple of what?  In the first case it might be…

DCF

Valuation – Discounted Cash-flow Analysis (DCF) and Forecasting

Company specific valuation approaches include the capitalized earnings and the Discounted Cashflow (DCF) method.  A DCF requires a forecast of the company’s revenues and earnings and then a terminal value is established (to represent the value beyond the forecast period), all of this is then discounted to arrive at present values to be added up.  The…

value

What Drives a Strong EBITDA Multiple?

A higher EBITDA multiple is paid for lower risk, but, the biggest driver in attaining a higher EBITDA multiple is a company’s profitable growth prospects, and, this should already be evidenced by a historical growth record. Let’s look at the public markets for an illustration.  The dividend discount model asserts that the fair value of…