How to Value a Business with No Assets | Viking Mergers (2024)

FAQs

How to Value a Business with No Assets | Viking Mergers? ›

Market-based business valuations calculate your business's value by comparing it to similar businesses that have previously sold. This method applies well to a business with no assets, but comes with the challenge of identifying sufficiently comparable competitors (who would presumably also have no assets.)

Assets: Adding the material worth of a company's assets and subtracting liabilities is a simple yet effective way to gauge value. Earnings before interest, tax, depreciation & amortization (EBITDA): Taking EBITDA allows buyers to compare the seller's company with competitors by taking out these four factors.

The Revenue Multiple (times revenue) Method

A venture that earns $1 million per year in revenue, for example, could have a multiple of 2 or 3 applied to it, resulting in a $2 or $3 million valuation. Another business might earn just $500,000 per year and earn a multiple of 0.5, yielding a valuation of $250,000.

M&A Valuation Methods: DCF, Multiples, and LBO — Why Multiples Often Prevail. The DCF model is a widely used valuation method that estimates the intrinsic value of a company by calculating the present value of its future free cash flows.

In fact the lack of assets don't matter at all, only the fact that someone can, with training, produce the same level of earnings. Last year we sold a company for almost $1 million, and the assets consisted of only a truck, three desks and three computers.

Financial statement analysis serves as the bedrock for assessing the viability and strategic fit of a potential acquisition or merger. It involves scrutinizing the target company's balance sheet, income statement, cash flow statement, and notes to the financial statements.

Use Revenue or Earnings as Your Guide

For example, if the industry standard is "three times sales" and your revenue for last year was $500,000, your revenue-based valuation would be $1.5 million. Multiplying your earnings, or how much your business makes after subtracting its costs, is another valuation method.

Generally, a small business is worth 1-2 times its annual profit. However, this number can be higher or lower depending on the circ*mstances. If the business is in a high-growth industry, for example, it may be worth 3-5 times its annual profit.

Factors affecting small business valuation

Thus, buyers have to approach the deal as if they are purchasing a job. Businesses where the owner is actively-involved typically sell for 2-3 times the annual earnings of the company. A business that earns $100,000 per year should sell for $200,000-$300,000.

A less sophisticated but still popular way to determine a company's potential value quickly is to multiply the current sales or revenue of a company by a multiple "score." For example, a company with $200K in annual sales and a multiple of 5 would be worth $1 million.

How do you calculate equity value in M&A? ›

To calculate equity value from enterprise value, subtract debt and debt equivalents, non-controlling interest and preferred stock, and add cash and cash equivalents. Equity value is concerned with what is available to equity shareholders.

The most common methods used are discounted cash flow (DCF) analysis, comparable company analysis, precedent transaction analysis, and asset-based valuation. Each has its strengths and weaknesses, so you must evaluate which will yield the most accurate assessment based on the specifics of your transaction.

Discounted Cash Flow (DCF) or income-based valuations calculate a business's value based on its projected cash flow, which is then partially discounted to account for a buyer's risk.

The trustee may decide not to take any action if the company has no assets or if there is little or no value in the company. If this occurs, a creditor may make a court application to put the company into liquidation and appoint a liquidator.

Director redundancy and no asset liquidations

Another potential way to pay for a Creditors' Voluntary Liquidation if your company has debts and no assets is by claiming director redundancy. If you or other directors have worked for the limited company for two years or more, you may be entitled to make a claim.

Company valuation = Debt + Equity – Cash

Since the enterprise value method considers every source of capital, investors can rely on this valuation to neutralise market risks. However, using the enterprise value method to determine the company worth for high-debt industries can lead to incorrect conclusions.

What is Financial Valuation? Financial valuation plays a pivotal role in mergers and acquisitions (M&A). It involves determining the worth of a target company and evaluating its financial performance, assets, liabilities, and future earnings potential.

Add up the value of everything the business owns, including all equipment and inventory. Subtract any debts or liabilities. The value of the business's balance sheet is at least a starting point for determining the business's worth. But the business is probably worth a lot more than its net assets.