Value a privately held business?

Question

What is the best way to value a privately held company?
Details on how to analyze or specific web references are appreciated.

Answer 1

1)Comparable analysis
2)Recent Transaction
3) DCF

For1) Find comparable companies and use a multiple to value ur company ( multiple can be EV/EBITDA or EV/FCF, depends on industry)
2) DCF

Forecast earning, discount using WACC.
Calculating WACC:
Use average beta of comparable companies, then unlever the beta using the average D/E of comparable companies, then relever the beta using the D/E which the management tells you or sector average.
Now calculate the ROE and calcuate the WACC and use it to discount your FCF and terminal value.

For more details give search on valuation and i believe u will get lots of references.

Hope that helps.

Answer 2

The first answer was good but the thing I think you are looking for is where can you go to find the true value. When a company is looking to buy another company if it is a friendly take over the books are open and the financial are reviewed.

The same is true on a privately held company. You are doing the same thing a Loan Company would do before lending the money.
Request the books and 2-3 years of tax returns.

Answer 3

Depends. The value of a business is always equal to the equity of the business. Total Assets = Total Liabilities-Total Equity.

But there might be some extra equity not denominated on the balance sheet. That's called Goodwill, and it can be difficult to answer.

Your question is really about how YOU could value a business. So how do YOU value a business.

Start by thinking of what the Total Assets of the business might be worth on the open market. Then think of what the replacement cost of those Assets might be. Inquire about the liabilities the business has assumed, and what liabilities will flow to you if you buy the business. If the seller is impatient to sell you may get the seller to pay off some liabilities from thier personal finances.

There is no easy or quick answer. It always depends...

Answer 4

If you're looking to buy or sell one, or if you have to do a split among relatives, your best bet would really be to get a private evaluation. It will cost about $10,000, and you want a company that does these regularly, but it will be the most accurate.