Ron SpickerContact
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Discreet and non-binding. We run the numbers and show what is possible.
Four methods, no single truth: a valuation is a range with its assumptions on the table.
Anyone holding a valuation for the first time sees one number, often precise to the franc. Behind it sit assumptions, and they decide. Know the methods before trusting the number.
Adjusted earnings, usually EBITDA, or EBIT for capital-intensive businesses, are multiplied by a factor. The factor is taken from comparable transactions or listed peers. The method is fast and close to the market. Its weakness is the comparison: for SMEs, transaction data is thin, and a multiple that fits a large group says nothing about a small specialist.
A DCF discounts future free cash flows to today at the cost of capital. It forces a business plan and shows which assumptions carry the value. It is also the easiest method to flatter. The terminal value often accounts for most of the result, and half a percentage point on the cost of capital shifts it visibly.
In Switzerland, the Praktikermethode (Swiss practitioner method) is common. It combines net asset value and capitalised earnings value, counting the latter twice. It is established and easy to explain, say to authorities or heirs. A buyer sees it differently: the method never asks what a market would pay.
Net asset value is assets minus debts. For capital-intensive or low-earning businesses it is relevant. For a healthy company it marks a floor, not the sale price.
The formula is rarely the problem. The inputs almost always are.
What counts is sustainable earnings, normalised for the entrepreneur's salary, one-offs and private expenses run through the company. Then come Net Working Capital at a normal, seasonally adjusted level, debt-like items such as provisions, taxes or leases, and a cost of capital that matches risk, size and sector. Get this right and half the valuation is done.
A good valuation shows scenarios (base, upside, downside) and names the assumption that drives value most. Set side by side, the results of the methods form a Football Field. When the bars sit far apart, ask why. Usually one assumption is behind it.
Three errors come up most often. A multiple is taken over without a matching peer group. Synergies are priced in that only one particular buyer has. And one method is mistaken for the truth. Rules of thumb such as several times annual profit give a first orientation but are no substitute for analysis. How a price takes shape in the end is the subject of What is my business worth?
This article gives an overview and does not replace an individual valuation. Which method fits depends on the company, the purpose of the valuation and the available data.
Discreet and non-binding. We run the numbers and show what is possible.