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 for Private Companies

Historical operating income of private companies often requires adjustments in order to present a number that a buyer can reasonably expect going forward.  We call these “normalization adjustments”.  Profitable private companies will try to minimize their taxes payable.  This is simply good business practice. However, one must be reasonable; for example, the spouse of an entrepreneur…

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…

goodwill

Goodwill Transferability is Critical for a Successful Business Sale

Goodwill transferability is critical for a successful business sale.  In many cases, small businesses rely on key management; typically the founder and CEO. The founder and CEO will have developed the IP, maintain trade secrets in his/her head, manage client relationships and sometimes relies on personal trust as opposed to written contracts in client and…

value

What Drives a Strong EBITDA Multiple?

A higher multiple is paid for lower risk, but, the biggest driver in attaining a higher 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 a stock…