ValuAdder Business Valuation Blog

With a global focus on sustainable manufacturing, scrap metal recycling is a key growth industry segment. Classified under the SIC code 3339 and NAICS 331419, there are just under 8,200 metal recycling companies in the US alone. The industry as a whole generates some $21.1B in annual revenues and employs close to 75,600 people.

Yet an average metal recycling firm is quite small – with around $3,000,000 in annual sales and a staff of  9.

Business valuation methods for metal recycling companies

Being in a growth segment usually means there is considerable investor appetite for business acquisitions. Indeed, scrap metal recycling businesses sell quite often.

The recent sales of similar businesses offer you an excellent way to determine you company value. Valuation multiples that relate the actual business selling prices to key financial performance measures are the typical valuation tools.

Using valuation multiples derived from recent recycling business sales, you can develop an accurate estimate of value for firm in this industry segment. The most common valuation multiples used for valuing metal recycling businesses are these:

  • Business selling price to business gross revenues or net sales.
  • Business price to gross profit.
  • Price to net income.
  • Selling price to EBIT and EBITDA.
  • Price to seller’s discretionary cash flow.
  • Company price to business assets.
  • Price to owners’ equity.

Example – valuing a metal recycling company using valuation multiples.

To demonstrate how the value of a business in this industry can be determined, let’s select a firm with the typical financial performance as follows:

  • Gross annual revenue: $3,000,000.
  • Net sales: $2,900,000.
  • Gross profit: $1,000,000.
  • Net income: $250,000.
  • EBIT: $145,000.
  • EBITDA: $282,500.
  • Seller’s discretionary cash flow (SDCF): $750,000.
  • Furniture, fixtures and equipment (FF&E) assets: $400,000.
  • Inventory: $355,200.
  • Total business assets: $950,000.
  • Book value of owners’ equity: $600,000.

Next, we apply a set of reasonable valuation multiples and come with the following business valuation results:

Multiple Multiple value Business value
Business value based on gross revenue 0.8 $2,755,200
Value based on net sales 0.82 $2,378,000
Business value based on gross profit 3 $3,000,000
Value based on net income 11 $2,750,000
BV based on EBIT 15 $2,175,000
Value based on EBITDA 12 $3,390,000
Business value based on SDCF 2.75 $2,417,700
Value based on FF&E assets 6.5 $2,955,200
Value based on total assets 2.75 $2,613,875
Value based on owners equity 5 $3,000,000
Average Business Value $2,711,067

Fair market value or investment value?

Market based valuation as this example illustrates tends to be a great way to determine the fair market value of your business. This is because the valuation multiples are derived from a large number of comparable business sales, establishing the “going rate” for similar business investments.

Exceptional companies may attract very strong investor interest. Professional investors that are looking for synergies to enhance their portfolio in your market segment may be willing to pay a premium for the right business opportunity. As a result, your actual investment business value may well exceed the fair market value estimate.

Valuation of a Metal Recycling Company

You can determine the market value of your business by comparison to similar business sales. Market Comps from reliable, court-tested data sources make your business appraisal both very accurate and defensible.