Business Valuation Calculator

Four inputs, three answers, and they disagree on purpose. On the defaults, earnings of 150,000 at a multiple of 4 give an earnings valuation of 600,000. Assets of 200,000 less liabilities of 50,000 give a net asset value of 150,000. The midpoint of the two is 375,000. Same business, same day, and the earnings figure is four times the asset one. That gap is the useful output here, not any single number inside it.

Two methods, two different questions

An earnings multiple asks what the profit stream is worth to somebody who wants to own it. Net asset value asks what the balance sheet would fetch if the business stopped trading tomorrow. Accounting standards treat that split as normal rather than as a contradiction: under IAS 36 the recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use, the first being an arm's length sale price and the second the future cash flows it will produce, discounted to present value. Two legitimate figures for one asset, arrived at by different routes.

IFRS 13 adds the constraint that keeps a valuation honest. Fair value is the price that would be received in an orderly transaction between market participants, an exit price, and the owner's intention to hold rather than sell is explicitly not relevant to it. Whatever the spreadsheet says, the number that settles a transaction is the one a buyer will pay.

The multiple carries the whole earnings valuation

Moving it from 4 to 5 on the same 150,000 of earnings takes the earnings figure from 600,000 to 750,000 and the blend from 375,000 to 450,000. One unit on the multiple is one full year of earnings, which is why it is the term that gets argued over. There is no universal figure to reach for: a multiple is a summary of what comparable businesses in the same segment actually changed hands for, and it moves with the market it came from. Ranges circulate in the trade by sector and size, but they are conventions rather than measurements, which is why the field asks for yours.

The earnings basis has to match the multiple

EBITDA is earnings before interest, tax, depreciation and amortisation. Seller's discretionary earnings adds the owner's own compensation and personal costs back on top, so for an owner-operated business it is the larger of the two, sometimes substantially. A multiple drawn from EBITDA transactions applied to a discretionary earnings figure produces a valuation that is too high, and the reverse produces one that is too low. The calculator multiplies whichever number is entered by whichever multiple is entered, and has no way of telling that the two came from different conventions.

Where the blend helps and where it misleads

The 50/50 blend is an arithmetic midpoint, not a market convention, and it is only as useful as the two figures feeding it. Where both methods are asking a sensible question about the same business, it brackets a range. Where one of them is the wrong question, it drags the answer toward a figure nobody would transact at. On the defaults the blend sits 225,000 below the earnings valuation purely because the balance sheet is small, which is the ordinary shape of a services business: the things being bought are client relationships and the people who service them, and neither appears in the asset field. For an equipment-heavy business the relationship inverts, and net asset value becomes a floor, because the assets could be sold whether or not the trading continues.

What the calculator does not model

Discounted cash flow, which needs projected cash flows and a discount rate rather than a single year held flat. Comparable transaction data, which needs the transactions. Control premiums and marketability discounts. Working capital adjustments settled at completion. Earnouts and deferred consideration, which change what the price is actually worth. And the structure of the sale, which moves value between the two sides. The calculation also holds one year of earnings constant, so a business whose earnings are falling is worth less than its multiple implies, and one growing quickly is usually worth more.