Category: Valuation
How buyers and advisers estimate what a company is worth — intrinsic and relative methods.
19 articles in this category.
- Accretion/dilution analysis — A test of whether a deal raises or lowers the acquirer’s earnings per share.
- Asset-based valuation — Valuing a business at the net realisable value of its assets minus liabilities. Most relevant for asset-heavy, low-profit or distressed businesses.
- Business valuation — The set of methods used to estimate the economic value of a company or its equity, almost always triangulated across several approaches into a defensible range.
- Comparable company analysis — Relative valuation using the market multiples of similar publicly traded companies.
- Control premium — The extra amount per share a buyer pays to acquire a controlling stake versus the price of a minority interest. Reflects the value of being able to direct the business.
- Discount for lack of marketability — An adjustment that reduces the value of an illiquid (typically private-company) interest to reflect the fact that there is no ready public market in which to sell it.
- Discounted cash flow — An intrinsic valuation that discounts a company’s projected cash flows to present value.
- EBITDA — Earnings Before Interest, Taxes, Depreciation and Amortization — a measure of a company's operating profitability used as the base for most M&A multiples.
- EBITDA multiple — The ratio of enterprise value to EBITDA, the most common shorthand for what a business is worth in M&A. Industry, scale, growth and quality of earnings all move it.
- Enterprise value — The total value of a company’s operations, independent of its capital structure.
- Minority discount — A reduction in per-share value applied to non-controlling stakes to reflect the limited rights minority holders have over distributions, sale and operations.
- Normalization adjustments — Adjustments to reported earnings to remove one-time, non-operating or owner-specific items, producing a run-rate EBITDA that better reflects the ongoing business.
- Precedent transaction analysis — Relative valuation using the multiples paid in comparable past acquisitions.
- Quality of earnings — An independent accounting analysis that tests how sustainable, predictable and accurately measured a target's reported earnings are. The QofE is a near-universal pre-LOI deliverable in serious deals.
- Revenue multiple — Enterprise value divided by revenue. Used when EBITDA is negative (early-stage, software) or to sanity-check EBITDA-based valuations.
- Seller's discretionary earnings — A small-business profitability measure equal to EBITDA plus owner compensation and discretionary expenses. Standard in lower-middle-market and main-street M&A.
- Sum-of-the-parts valuation — Valuing each business segment of a company separately and adding the parts. Often used for diversified conglomerates or ahead of a planned spin-off.
- Terminal value — In a DCF, the present value attributed to all cash flows beyond the explicit forecast period — typically the largest single component of total value.
- Weighted average cost of capital — The blended after-tax cost of a company's debt and equity capital, weighted by their proportions. The standard discount rate used in DCF valuations.