URGENT!!! DUE IN 1 HOUR. 200 words needed.

Finding and evaluating the value of a business whether it be your own, looking to purchase, or just investigating for investing purposes is no easy task. Truth of the matter is there is many ways of determining the value of a business and there is no real correct way. Now just because there isn’t a right way doesn’t mean there are no bad ways because there are several wrong ways but none the less its dealers choice on how you would determine a company’s value.

            To valuate a company can be simple and easy or incredibly complex and tedious and need assistance from other professionals. Both can be true because it is up to the buys or seller to come up with how much that particular company is worth. You may ask yourself how can this be true and how can the owner or buyer just determine a value based on whatever they chose be correct? The answer is simple; value is based on perspective whether it is a rock or a car. The owner can sell his company for a single dollar or one million dollars because it’s his choice and what he wants to get out of it combined with what the buyer is willing to pay for the company. Now there are realistic ways to help figure out what a company is worth for those who wish to pursue a more intrinsic approach.

            One of the easiest and more crude approximations of what a business is worth. If the business sells $100,000 per year, you can think of it as a $100,000 revenue stream. Often, businesses are valued at a multiple of their revenue. The multiple depends on the industry. For instance, a business might typically sell for "two times sales" or "one times sales" (Robbins, n,d). One think to be wary about using this method is sales does not mean profits. No matter how much a company sells, it means very little to any owner if it does not produce profit.

            A little more complex way to help valuate a business’s worth is using EBITDA or earnings before interest, taxes, depreciation and amortization. The EBITDA is often used as a multiple so if a buyer or investor thinks that your company is worth three times your EBITDA then to him/her your one hundred-thousand-dollar company is worth three hundred-thousand dollars (Powers, 2014). You can also use your EBITDA for a margin so if you divide you EBITDA by your revenue you can get a percentage that can be used to track the performance of your company over times as well as adding to the value of the company.

            If you are valuating what is considered a young company things tend to be a little different in a few ways. If you are valuating your own company, adding up your assets is a great place to start. Typically, young companies will not have much for assets but every dollar matters. After that you move onto your intellectual property such as patents, trademarks, and incorporation papers. As mentioned by Forbes, “this approach may seem squishy, but the dollar amounts are real”. Every dime counts when it is your company.” Another way to look at valuation is by estimating a company’s earning potential based on theoretical demand in the market. “Start by estimating the size and growth of your addressable market. The bigger the market, and the higher the growth projections (ginned up by independent analysts), the more your start-up is potentially worth. Next, assess the competition and determine the barriers to entry. The stiffer the competition, the lower your valuation. On the flip side, the more fortified your company against new challengers (based on factors such as location, contracts with key customers, first-mover advantage, etc.), the more it’s worth. These intangibles translate into what’s known as goodwill–the amount a buyer might pay for your company above the value of the assets on your balance sheet” (Zwilling, 2004). Next up are all principals and employees. The value of most companies is in their people. In the dot-com boom of the late 1990s, it was not uncommon to see valuations rise by $1 million for every paid full-time programmer, engineer or designer. Don’t forget to include the value of sweat equity–as in the theoretical salaries that would have been paid to founders and executives who didn’t take them. Lastly is the income evaluation which young companies are penalized for how new they are. “The discount rate applied to start-ups is typically steep–from 30% to 60%. The younger the company, and the greater the uncertainty of its future earning power, the larger the discount rate should be” (Zwilling, 2004). As you can clearly see a newer company will have to work harder for the highest valuation because of their lack of assets and the uncertainty of their long term profitability.

                        In conclusion there are many other ways that I did not mention and they can be just as useful in evaluating a company’s worth. It makes little difference which method you chose because all give you a reference point to judge a company against its competition. For the best results you are best to use as many different ways as possible to incorporate as much statistical data. The more information you have covering a broad spectrum of options the more realistic of a number you will come up with. This will also help keep you from making a poor decision because the company might be boosting its numbers with high assets and sales and if you are not looking at its profitability you might be buying a lemon.