How to value a company: methods, formulas and examples
Learn 6 ways to value a company, with steps and worked examples to set a fair price or raise capital.
Written by Jotika Teli—Certified Public Accountant with 24 years of experience. Read Jotika's full bio
Published Tuesday 6 October 2026
Table of contents
Key takeaways
- Choose a method that fits your business, such as earnings for service businesses or asset value for businesses with a lot of equipment or property.
- Use more than one method, because each gives a different figure and together they show a realistic value range.
- Treat multipliers as industry-specific, and ask an accountant or business broker for the typical range for businesses like yours.
- Prepare three to five years of clean financial records, and bring in a professional when selling, raising investment or facing legal matters.
What is a company valuation?
Before you pick a method, it helps to know what a valuation tells you. Company valuation is the process of estimating what your business is worth in dollar terms. The figure is an estimate, and the final sale price can differ.
Financial reporting uses it under standards like International Financial Reporting Standard (IFRS) 13 Fair Value Measurement. You can also use it when seeking finance or as a starting point when you sell. Knowing how to value a company gives you your own figure to test offers and loan terms against.
When do you need a business valuation?
A valuation is most useful ahead of a big financial decision. Common reasons to value your business include:
- selling your business and setting a fair asking price
- bringing on investors who want evidence of what the company is worth
- applying for a loan, where lenders may ask for proof of business value
- resolving a partnership dispute or agreeing a buyout amount
- planning for tax or your estate
- dividing assets in a divorce
How to value a company: common methods
Business valuation methods fall into three main groups. Asset-based methods look at what your business owns, income-based methods use earnings or cash flow, and market-based methods compare your business with similar companies.
To make each method easy to follow, this guide uses one sample business: a Singapore café with S$1,200,000 in annual revenue. All its figures are illustrative, so you can swap in your own numbers as you go.
Book value calculation
Book value measures your company’s net worth using the figures on its balance sheet. It suits asset-heavy businesses and is the quickest method to work out yourself. Its main limitation is that it uses recorded values, so it can miss what assets would fetch today and the value of goodwill.
Assets include property, equipment, inventory, cash, money customers owe you and intellectual property such as patents. Liabilities include loans, unpaid taxes and accounts payable, which are the bills you owe.
Book value = Assets – Liabilities
Steps to calculate:
- Pull your latest balance sheet
- Add up your total assets
- Add up your total liabilities
- Subtract total liabilities from total assets
For example, the café has S$850,000 in assets and S$320,000 in liabilities. Its book value is S$850,000 – S$320,000 = S$530,000.
Liquidation value calculation
Liquidation value estimates what owners would receive if the business sold all its assets and repaid all its debts. It’s useful when a business is closing or when a lender wants to know the minimum its security is worth. Its main limitation is that assets sold quickly often fetch less than their recorded value, so the result is usually the lowest of any method.
Unlike book value, it uses current market prices. Those prices can shift with short-term changes in demand, new competition, ageing technology or wider market disruption.
Company value = Liquidation value of assets – Liabilities
Steps to calculate:
- List every asset the business owns
- Estimate what each asset would sell for today
- Add up the resale values
- Subtract total liabilities from the total resale value
For example, the café’s assets would resell for S$610,000 and it still owes S$320,000, so its liquidation value is S$290,000. That’s S$240,000 below its book value, which shows how far resale prices can fall short of recorded values.
Multiply company earnings
Earnings-based valuation works out your company’s worth as a multiple of its annual profit. It’s one of the most common approaches for valuing small businesses, especially established service businesses that rely on profit more than physical assets. Its main limitation is the multiplier, which varies by industry and takes judgement to set.
You can use either net profit or earnings before interest, taxes, depreciation and amortisation (EBITDA) as your earnings figure. Businesses tend to earn a higher multiplier when they have loyal customers, market exclusivity, protected intellectual property or other advantages that are hard to copy. Standard multipliers often exist for specific industries, and a local accountant or business broker can tell you the typical range.
Company value = Earnings × Multiplier
Steps to calculate:
- Pull your profit and loss statement for the last full year
- Choose net profit or EBITDA as your earnings figure
- Find the typical multiplier for your industry
- Multiply your earnings by the multiplier
For example, the café made S$180,000 in net profit. With an illustrative multiplier of 3, its value is S$180,000 × 3 = S$540,000; the multiplier is for illustration only and isn’t a market benchmark.
Multiply company revenue
Revenue-based valuation, also called times-revenue valuation, works out your company’s worth as a multiple of annual sales instead of profit. It suits early-stage or high-growth businesses that aren’t profitable yet but show strong sales. Its main limitation is that it leaves out costs, so two businesses with equal sales get equal values, whatever their profit.
As with earnings, the multiplier drives the result. A local accountant or business broker will know the accepted range for your industry.
Company value = Annual revenue × Multiplier
Steps to calculate:
- Total your sales for the last 12 months
- Find the accepted revenue multiplier for your industry
- Multiply your annual revenue by the multiplier
- Check the result against a profit-based method
For example, the café’s annual revenue is S$1,200,000. With an illustrative multiplier of 0.5, its value is S$1,200,000 × 0.5 = S$600,000.
Multiply free cash flow
Free cash flow valuation measures your company’s worth based on the cash left after covering operating costs and planned capital expenditure. It shows whether your business can fund upgrades, such as new equipment, a shop refit or digital improvements, while normal operations carry on. Its main limitation is that estimating the capital expenditure you’ll need takes detailed analysis, so an accountant can help you get accurate figures.
Company value = Free cash flow × Multiplier
Steps to calculate:
- Find your operating cash flow on your cash flow statement
- Estimate your capital expenditure for the year
- Subtract capital expenditure from operating cash flow to get free cash flow
- Multiply free cash flow by the multiplier
For example, the café has S$230,000 in operating cash flow and plans S$60,000 of capital expenditure on a refit, leaving free cash flow of S$170,000. With an illustrative multiplier of 3, its value is S$170,000 × 3 = S$510,000.
Market-based valuation for public companies
If you’re valuing a listed company, such as one on the Singapore Exchange, two market-based measures give you a quick figure. Market capitalisation is the combined value of all a company’s shares, which shows what the market thinks the company is worth. Enterprise value adds debt and takes away cash, showing what it would cost to buy the whole company.
Enterprise value is often read alongside the debt-to-equity ratio to see how much of a company’s operations are funded by borrowing. Its main limitation is that it only works for listed companies, so for a private small business, use the asset-based or income-based methods above.
Enterprise value = (Share price × Shares outstanding) + Total debt – Cash
Steps to calculate:
- Find the current share price and the number of shares outstanding
- Multiply them to get market capitalisation
- Add the company’s total debt
- Subtract its cash and cash equivalents
For example, a listed company with 50 million shares trading at S$2.40 has a market capitalisation of S$120 million. Add S$30 million in debt and subtract S$10 million in cash, and its enterprise value is S$140 million.
Factors that affect business value
Knowing what drives your business value helps you improve it before you get a valuation. The main factors include:
- consistent profits and revenue growth, which support higher valuations
- a wide customer base, which lowers the risk for buyers
- a growing industry, which usually attracts higher multipliers
- unique technology, patents or market position that competitors can’t easily copy
- strong cash flow and manageable debt
- management and systems that let the business run without you
- economic conditions and buyer demand at the time of sale
Owners also weigh goals beyond price. The International Federation of Accountants notes that many small firms place high value on non-financial objectives, such as keeping family control or protecting company culture.
Which valuation method should you use?
The right method depends on your type of business, its stage and why you need the valuation. As a starting point, use:
- earnings-based methods for established service businesses, which rely on profit more than physical assets
- book value or liquidation value if you own a lot of property, equipment or inventory
- revenue-based methods if you’re not profitable yet but sales are growing strongly
- several methods if you’re preparing to sell, then agree the most suitable approach with a professional
- the methods set by accounting standards for financial reporting or tax, which change over time, for example to clarify what counts as a business
The sample café’s five results span S$290,000–S$600,000, so relying on one method could anchor you to the lowest or highest figure. Using several shows you a realistic range to negotiate within.
How to prepare for a business valuation
Preparing well gives you a more accurate valuation and a smoother process. To get ready, you can:
- organise three to five years of tax returns, profit and loss statements and balance sheets
- document your revenue streams, including customer lists, contracts and recurring revenue
- list your assets, including equipment, property and intellectual property
- review all outstanding debts, loans and other financial obligations
- gather employee contracts, supplier agreements and operating procedures
- separate personal and business expenses, and adjust for one-off events
Accounting software lets you create financial reports on demand, so the statements a valuer asks for are ready whenever you need them.
When to work with a professional
Choosing the right method and finding accurate multipliers takes expertise. You can work out basic book value yourself using your balance sheet. Complex valuations benefit from professional guidance.
Consider hiring a professional valuer when you’re:
- selling your business or negotiating with buyers
- seeking substantial investment or financing
- involved in legal proceedings, such as a divorce or partnership dispute
- preparing for tax or estate planning
- dealing with complex business structures or intellectual property
Every method gives an estimate, and the price you agree in a sale may differ because buyers bring their own view of value. Knowing your figure still gives you a firm base for negotiations and financial planning.
For simpler needs, your accountant can often guide you on suitable methods and industry multipliers. You can also find a certified advisor near you in the Xero Advisor Directory.
Track the numbers behind your business value with Xero
A valuation is only as reliable as the records behind it. Keeping your books current puts you in a stronger position whenever you sell, borrow or bring on investors.
Xero gives you real-time visibility of your balance sheet, profit and cash flow, so the figures each method needs are ready when you are. To see how it works for your business, get one month free and start tracking the metrics that shape your company’s value.
FAQs on valuing a company
These answers cover questions that often come up as you work through a valuation.
Is a business worth 5 times profit?
It depends on the multiplier for your industry, plus your growth potential, customer mix and competitive advantages. A local accountant or business broker can tell you the typical range for businesses like yours.
Can I value my business myself?
Yes, for informal purposes you can work out book value or a simple earnings valuation from your own financial reports. Hire a professional when the result will shape a sale, investment or legal decision.
How much does a professional business valuation cost?
The cost depends on your business’s size, its complexity and why you need the valuation. A business with simple finances usually costs less to value than one with several locations or complex intellectual property.
How often should I get my business valued?
Get a valuation every year if you’re growing fast or plan to sell soon, and every three to five years if your business is stable. Also get one before big decisions, such as bringing on partners or seeking angel investment.
What’s the difference between business valuation and appraisal?
A business valuation estimates the economic value of your whole company, including its future earnings potential. An appraisal usually assesses the market value of specific physical assets, for example for insurance or loan collateral.
What’s the difference between book value and net worth?
For a company, both are assets minus liabilities on the balance sheet, so the figures are usually the same. Net worth also applies to individuals, where it covers your personal assets and debts as well as any business you own.
Should I use net profit or EBITDA for an earnings valuation?
EBITDA strips out interest, tax, depreciation and amortisation, so it’s useful for comparing businesses with different debt levels or asset bases. Net profit shows what’s actually left for owners, so it’s worth checking both before you choose a multiplier.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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