Income-Based Valuation
Multiple of Discretionary Earnings
Business Valuation Summary Report
- Valuation Method
- Multiple of Discretionary Earnings
- Discretionary Cash Flow
- $275,000.00
- Net Working Capital
- $150,000.00
- Non-Operating Assets
- $120,000.00
- Long-Term Liabilities
- $15,000.00
Business Value
$873,750.00
Earnings Multiplier: 2.25
Introduction & Financial Details
This income-based valuation report estimates business value using the Multiple of Discretionary Earnings (MDE) method. Value is derived from the business' finances and 14 key business performance metrics.
Business Financial Situation
The following is a summary of the subject business' current financial situation.
Discretionary Cash Flow
Pre-tax business earnings plus single owner total compensation, other owners compensation adjusted to market, depreciation, interest expense, non-recurring expenses.
$275,000.00
Net Working Capital
Current assets less inventory minus current liabilities, less current portion of long term debt.
$150,000.00
Non-Operating Assets
Assets of the business that do not contribute to revenue generation.
$120,000.00
Long-Term Liabilities
Obligations of the business, such as long-term loans, that must be met over a period exceeding one year.
$15,000.00
Factors Affecting Business Value
The Multiple of Discretionary Earnings (MDE) method uses a multiplier to compute business value. The multiplier is derived from 14 key factors of business performance across a range of important financial and operational areas. Each factor ranges from 0.1 (worst) to 44 (best).
The multiplier is a weighted average of these factors.
| Factor | Value | Weight |
|---|---|---|
| Earnings track record | 3.5 | 28 |
| Industry growth | 2.5 | 26 |
| Business growth | 2.5 | 24 |
| Business financing | 2 | 22 |
| Competition | 1.5 | 20 |
| Location | 1.5 | 18 |
| Customer concentration | 2.1 | 16 |
| Product/service concentration | 1.9 | 14 |
| Market concentration | 1.5 | 12 |
| Nature of business | 2 | 10 |
| Desirability | 2.8 | 8 |
| Ease of operation | 2 | 6 |
| Employees | 2.5 | 4 |
| Management | 3 | 2 |
| Earnings Multiplier (Weighted Average) | 2.25 |
Calculation Results
The Multiple of Discretionary Earnings (MDE) business value is determined by multiplying the business' discretionary cash flow by the earnings multiplier, then accounting for net working capital, non-operating assets, and long-term liabilities.
| Valuation Component | Amount | |
|---|---|---|
| Discretionary Cash Flow | $275,000.00 | |
| × | Earnings Multiplier | 2.25 |
| + | Net Working Capital | $150,000.00 |
| + | Non-Operating Assets | $120,000.00 |
| - | Long-Term Liabilities | $15,000.00 |
| = | Business Value | $873,750.00 |
Indicated Business Value
$873,750.00
Earnings Multiplier
2.25