How to Calculate Company Valuation

Calculating company valuation can provide insight into the economic value of your business. Companies are bought and sold every day. If your company has positive profit margins — or even if it has the potential for positive profit margins — there are probably entrepreneurs who are willing to buy it. Whether you intend to sell it or not, though, you might be wondering how to calculate its value.

How to Calculate Company Valuation

Overview of Company Valuation

Company valuation, in basic terms, is how much a prospective buyer is willing to pay for your company. There’s no single way to calculate company valuation. Rather, there are several available methods. Below is a list of some of the most common valuation methods.

Analyze Stock Price

One way to calculate company valuation is to look at stock prices. Assuming your company is publically traded, you can use this otherwise simple method to calculate its value. If your company has 200,000 shares, each of which is selling at $10, your company would be valued at $2 million. Of course, this method only works if your company is publically traded. Many companies are privately traded, meaning this method won’t work.

Scrutinize Asset Value

Even if your company isn’t publically traded, you can still calculate its value by scrutinizing its assets. In other words, go through all your company’s assets while adding up their value. After determining the collective value of your company’s assets, you’ll need to subtract its liabilities from this number. If your company’s assets are worth $4 million and it has $1 million in debt and other liabilities, it would be valued at $3 million.

Look at Revenue

You can calculate the value of your company by looking at its revenue. Specifically, you should look at your company’s annual revenue and then multiply it by a number that corresponds with your company’s industry or niche. Known as the times-revenue valuation method, it’s commonly used to calculate the value of companies. The multiplier used in the times-revenue valuation method may consist of two, three or four. If your company generated $1 million in revenue last year and use three as the multiplier, it would be valued at $3 million using this method.

These are just a few methods for determining the value of a company. Selling a company is a major decision, so you should typically consult with a professional if you are thinking about this path. Otherwise, you may not get top dollar for your company.

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