Business Valuation Calculator
Using the earnings-multiple method, estimate a business value from its annual earnings and a valuation multiple.
Input Data
Results
At a glance:Business valuation estimates a company's worth; this calculator uses the common earnings-multiple method for a quick estimate, suited to SME sales, equity deals or initial price talks. value = annual earnings x multiple. 'Annual earnings' typically uses EBITDA or SDE; the multiple reflects market pricing of industry, scale and risk. Example: earnings 500k, multiple 3x → value ≈ HK$1,500,000. Simple and intuitive as a negotiation start. WARNING: Most simplified method — a rough estimate. Real valuation also weighs growth, customer concentration, founder dependence, assets/liabilities; the 'reasonable multiple' varies hugely. Rigorous methods: DCF, asset-based, market-comparable; for big deals seek professional advice.
Formula
Multiple method: valuation = earnings (EBITDA / net profit) × industry multiple.
DCF method: valuation = Σ FCF_t / (1 + r)^t + terminal value / (1 + r)^T.
$$V = E \times m$$How to Use
- Enter the annual earnings (EBITDA or SDE).
- Enter a reasonable valuation multiple.
- View the estimated business value.
FAQ
Which 'annual earnings' should I use — can I use net profit?
The choice of earnings measure drives the result and the multiple to pair with it. EBITDA (before interest, tax, depreciation, amortisation) suits larger firms — it strips financing and accounting policy to show operating profitability. SDE (seller's discretionary earnings) suits SMEs/owner-run firms — it adds back the owner's pay and benefits to show what a buyer can actually pocket. Net profit can be used but is after interest and tax, so the paired multiple differs. Key: keep the earnings measure and multiple consistent (EBITDA multiple with EBITDA, SDE multiple with SDE). Also 'normalise' earnings by stripping one-offs to reflect sustainable profit.
How do I decide a 'reasonable multiple' and why does it vary so much?
The multiple is what the market will pay per dollar of earnings; it has no fixed standard and varies widely by industry and firm. Higher multiples come from fast-growing industries, stable/predictable earnings, dispersed customers, low founder dependence, and moats (brand, patents). Lower multiples come from stagnant growth, volatile earnings, concentrated customers/suppliers, heavy founder reliance, or sunset industries. Scale also matters — larger firms usually command higher multiples. Find the multiple from recent comparable deals or listed peers, then adjust for the target's strengths/weaknesses. Because the result is so sensitive to the multiple, this tool gives only a 'based-on-your-multiple' estimate; the multiple's reasonableness is the key.
Is the multiple method reliable vs DCF?
The multiple method is fast and intuitive — great for a quick reference or initial negotiation, very common in SME sales. But it is limited: it compresses a complex business into 'earnings x a multiple', ignoring growth path, cash-flow timing, capital structure and balance sheet, and is extremely sensitive to the multiple. DCF projects future free cash flows and discounts them — theoretically closer to intrinsic value but needing many assumptions (growth, discount rate, forecast period) that also vary widely. There are also asset-based (net asset) and market-comparable methods. Professionals often use several and cross-check. Treat this result as a preliminary reference; for major deals engage an accountant or valuer.
Is the valuation the same as the final price?
No. Valuation is the analytical 'what it is worth'; the deal price is what buyers and sellers actually agree, shaped by bargaining power, motivation (urgent sale vs holding out), payment structure (lump sum, instalments, earn-out), supply/demand and even emotion. The same firm can sell at very different prices. Valuation is the negotiation 'anchor'; the final price depends on the deal.
Beyond valuation, what matters when buying/selling a company in Hong Kong?
Deal structure and due diligence matter as much as price. Watch whether it is a share deal or asset deal — they differ on liability assumption, tax (stamp duty, Profits Tax) and risk transfer. Buyers should do financial, legal and tax due diligence (verify earnings, contingent liabilities, transferable contracts/licences); sellers handle staff rights, lease and customer-contract assignments. These affect price and terms; engage accountants and solicitors, and follow the IRD and relevant regulators.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.