What Is My Company Worth? An Overview of Valuation Methods

"What is my company worth?" There is no single right number to this question. Give the same company to three appraisers, and you will get three numbers.

That is not a flaw 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.

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

Net asset value — what the company owns

Net asset value is the simplest logic. It sums up what is in the company: machinery, buildings, inventory, receivables — less debt.

This yields a comprehensible floor. For asset-intensive businesses, for instance in manufacturing or real estate, this figure is relevant. It shows what would remain if you dismantled the company today.

The catch: net asset value ignores the future. It values the inventory, not the earning power. A software company with little fixed assets but stable recurring revenues would be worth almost nothing by net asset value — and that is precisely why the method does not suit such cases.

Income value and DCF — what the company earns

The second logic reverses the question. Not: what does the company own? But: what earnings will it generate in future?

The income value method and the internationally common discounted cash flow method (DCF) follow the same basic idea. They estimate future surpluses and discount them back to today's value — at a rate that reflects the risk. A secure euro in five years is worth less today than a euro in hand.

This method is the theoretically cleanest, because it values what matters: the future. It is also the basis of formal expert opinions, for instance under the IDW S1 standard.

Its weakness lies in the assumptions. The result depends entirely on the forecast and the chosen discount rate. Small changes to the discount rate shift the result considerably. A DCF calculation is only as reliable as the assumptions that feed into it — and those are open to dispute.

The multiples method — what the market pays

The third logic looks outward. Instead of calculating the company in isolation, it compares it with what is actually paid for similar companies.

This usually works via a multiple of profit. A common benchmark is the EBITDA multiple — earnings before interest, taxes, depreciation and amortisation, multiplied by an industry-typical factor. In the DACH region these factors lie, depending on sector and source, roughly between four and eight times, and considerably higher in growth-strong segments such as software. Current ranges are published, for example, by the KPMG multiples and the monthly FINANCE multiples.

The advantage: the method is close to the market and quick. It shows the order of magnitude in which a realistic price moves.

The limit: a multiple is an average of other transactions. Your company is not an average. Whether you land at the upper or lower end of the range is decided by value drivers such as recurring revenues, growth and the question of how strongly the business depends on you as a person.

Why in practice all three count

No serious process relies on a single method. In practice one approaches the value from several sides and checks whether the results fit together.

Net asset value marks the floor. The income value or DCF method provides the intrinsic value from earning power. The multiples method grounds the whole in what the market actually pays. If the three lie far apart, that is not a contradiction but a signal — usually pointing to an assumption that deserves examination.

An EBITDA multiple is a reality check, not a price tag.

What no method can do

Here is the uncomfortable truth about every valuation: it calculates a value, but not the price.

The price does not arise in the formula. It arises when a specific buyer has a specific reason to pay more than the next — because your company closes a gap in their portfolio, opens a market or brings a team they could not otherwise get. No method 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 notion is realistic. The price is ultimately determined by the negotiation — and by a buyer who wants to pay.

The real value emerges 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-intensive businesses need net asset value as a floor; high-earning service providers are valued via income value or DCF and multiples. In practice one combines the methods and checks whether the results fit together plausibly.

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 for the same company are higher. The key is never to mix multiple and reference figure.

Can I determine my company's value with an online calculator? An online calculator provides 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 sector. The false precision of an instant figure is no substitute for a sound, market-based assessment.

When should I think about a valuation? Ideally before concrete conversations are due — a valuation is the sober starting point of any succession or sale consideration. Read more on the right timing in "When is the right time for succession or sale?". Which levers raise value before a sale is shown in "Increasing enterprise value".