A normal year’s profit, after removing one-off items and adjusting owners’ pay to a market salary.
Method 1: earnings multiple
Method 2: capitalisation of earnings
From business value to owners’ value
Indicative value of the business to its owners-
Earnings multiple method-
Capitalisation method-
Cash less debt included in both figures: Rs 0
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Method notes
The two methods
| Earnings multiple | Yearly profit multiplied by a multiple. Lower multiples suit small, owner-dependent or risky businesses; higher multiples suit larger, stable and growing ones. |
| Capitalisation of earnings | Next year’s profit divided by your required return less long-term growth. A higher required return or lower growth gives a lower value. |
| Debt and cash | Both methods value the business as a whole. Borrowings are deducted and surplus cash is added to reach the value of the owners’ shares. |
Good to know
How this tool works
- The figures already filled in are examples only, not market rates. Replace the multiples, required return and growth with figures that suit your business and sector.
- This is a rough, indicative range. A formal valuation looks at the quality of earnings, assets, risks, market evidence and the purpose of the valuation, and the result can differ significantly.
- Loss-making and asset-heavy businesses, such as property holding companies, are usually valued on their assets instead.
- Do not rely on this estimate for a sale, purchase, share transfer, tax or legal purpose without a professional valuation.
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