Before setting out on a valuation of a retail pharmacy, consider these industry stats:
Just in the US alone there are over 42,000 pharmacy businesses classified under SIC code 5912 and NAICS 44611. As an industry group these companies generate a total of $202B in annual revenues. The industry sector employs some 815,000 staff. The average sales per establishment are $4.8M per year with a staff of 20.
Business valuation of pharmacies
Established privately owned retail pharmacies with a solid track record of profits offer an attractive acquisition target. Selling prices of such companies give you an indication of what a similar pharmacy may be worth on the market.
For tools to value your pharmacy, start with the selling prices from recent deals and relate them to the companies’ financial figures. The statistical ratios you get from this are known as valuation multiples that you can use to calculate the value of a pharmacy.
The typical valuation multiple for this retail industry sector is the price to gross revenues and an addition of inventory.
Example: Pharmacy business valuation based on annual revenue
Let’s consider an example pharmacy with a gross revenue of $4,800,000 and inventory of $2,000,000.
We pick a set of reasonable valuation multiples to do our value calculations:
|Multiple||Multiple value||Business value|
|Average Business Value||$2,933,600|
As is customary in valuing pharmacies, the value of the inventory is added to the multiple based calculation. This is mainly because levels of inventory tend to vary quite a bit over time and from one business to another.
Current pharmacy sales offer you an excellent way to determine the value of any other pharmacy business. You can delve into details by running additional calculations based on other financial figures such as net profits, EBITDA, cash flow and assets.