Business Valuation Calculator

The most common way to value a trading business is to apply a multiple to its earnings, usually adjusted EBITDA (earnings before interest, tax, depreciation and amortisation, after adding back one-off costs and any owner's salary above a fair market rate). Multiplying adjusted EBITDA by a sector-appropriate multiple gives the enterprise value, the value of the operating business itself.

To get to equity value, the figure a shareholder would actually receive, you add back any surplus cash and non-trading assets sitting in the business beyond what it needs to operate, and deduct any debt. The multiple itself varies enormously by sector, by size, and by the specifics of the business: recurring revenue, customer concentration, growth rate, and how dependent the business is on the owner all push the multiple up or down within (or beyond) the typical range for the sector.

This is why a valuation is always best expressed as a range rather than a single number, and why the number you get here is a starting point for a conversation, not a final figure. Worked example: a company with £500,000 of adjusted EBITDA in a sector with a 3x to 5x range gives an enterprise value of £1.5 million to £2.5 million. Add £50,000 of surplus cash and deduct £100,000 of debt, and the indicative equity value range becomes £1.45 million to £2.45 million, with a midpoint around £1.95 million.