What Is My Company Worth? An Overview of Valuation Methods

"What is my company worth?" There is no single right answer to this question. Give the same company to three appraisers and you get three figures.

That is not a fault in the system. The common methods ask different questions. One asks what the company owns. Another, what it earns. The third, what the market pays for comparable businesses.

Anyone who wants to understand the value of their company should know all three logics — and where each reaches its limit.

What is the asset value?

The asset value sums up what is inside the company — machines, buildings, inventories, receivables, less the debt. It provides a comprehensible lower limit and is relevant above all for asset-heavy businesses. Its weakness: it values the inventory, not the earnings power, and thereby ignores the future.

For asset-heavy businesses, e.g. in manufacturing or real estate, this figure shows what would remain if you broke the company up today. A software company with few fixed assets but stable recurring revenues would be worth almost nothing by asset value — which is exactly why the method is unsuitable for such cases.

How do earnings value and DCF work?

The earnings-value method and the internationally common discounted-cash-flow method (DCF) estimate the company''s future surpluses and discount them to today''s value — at a rate that reflects the risk. They value the future, not the inventory. That makes them theoretically the cleanest.

A secure euro in five years is worth less today than a euro in the till. These methods are also the basis of formal reports, e.g. under the IDW S1 standard. Their weakness lies in the assumptions: the result depends entirely on the forecast and the chosen rate, and small changes in the discount rate shift it considerably. How the two methods differ is shown in „Earnings Value vs. DCF".

What is the multiples method?

The multiples method derives value from the market: it multiplies a metric — usually EBITDA — by a customary industry factor from comparable transactions. It is market-based and fast and shows the realistic order of magnitude, but delivers only an average of other deals, not an individual value.

In the DACH region these factors range, depending on industry and source, roughly between four and eight times, considerably higher in high-growth segments such as software. Current ranges are published, for instance, by the KPMG multiples and the monthly FINANCE multiples; where your industry stands is set out in „EBITDA Multiples by Industry". Whether you end up at the upper or lower edge is decided by value drivers such as recurring revenues, growth and how strongly the business depends on you as a person.

Why do all three methods count in practice?

No serious process relies on a single method: the asset value marks the floor, earnings value or DCF the intrinsic value from earnings power, the multiples method grounds it all in the market price. If the three results diverge widely, that is not a contradiction but a signal — usually toward an assumption that should be checked.

In practice, you therefore approach the value from several sides and check whether the results fit together. An EBITDA multiple is a reality check, not a price tag.

What can no valuation method do?

No method calculates the price — only a value. The price arises only when a specific buyer has a specific reason to pay more than the next one: because your company closes a gap in their portfolio, opens a market or brings a team they could not otherwise get. No formula captures this strategic premium.

That is why a valuation is the starting point of a process, not its result. It tells you whether a buyer''s idea is realistic. Which buyer type is more likely to pay the premium is set out in „Strategic Buyer or Financial Investor?". In the end the price is determined by the negotiation — and a buyer who wants to pay.

The real value arises in the negotiation, not in the formula. For a realistic, independent assessment: IGCP Capital Partners. → igcp.at

Frequently asked questions

Which valuation method is the right one?

There is no single right method — it depends on the company. Asset-heavy businesses need the asset value as a lower limit; profitable service firms are valued via earnings value or DCF and multiples. In practice you combine the methods and check whether the results plausibly fit together.

What is the difference between an EBIT and an EBITDA multiple?

The EBITDA multiple refers to earnings before interest, taxes, depreciation and amortisation; the EBIT multiple to earnings after depreciation. Because EBIT is lower than EBITDA, EBIT multiples are higher for the same company. It is important never to mix the multiple and its reference figure.

Can I determine my company value with an online calculator?

An online calculator gives a rough orientation, no more. It knows neither the quality of your revenues nor your dependence as owner nor the current buyer interest in your industry. The false precision of an instant figure does not replace a sound, market-based assessment.

When should I think about a valuation?

Ideally before concrete talks arise — a valuation is the sober starting point of any succession or sale consideration. More on the right time in „The Right Time for Succession or Sale". Which levers increase the value before a sale is shown in „Increasing Company Value".