How to value a company: Methods to find your business worth

Published Friday 5 December 2025

Table of contents

• What is a company valuation?
• Why company valuation matters
• How to value a company
• Factors that affect company value
• Getting professional help with company valuation
• FAQs on company valuation

Key takeaways

• Apply multiple valuation methods to get a comprehensive view of your company's worth, as different approaches like book value, earnings multiples, and cash flow analysis serve different purposes and provide varying perspectives on your business value.

• Recognize that industry-specific multipliers significantly impact your valuation, with standard businesses typically valued at 2-5 times earnings while high-value businesses with strong customer loyalty, market position, or intellectual property can command 6-10 times or more.

• Utilize book value calculation as your starting point for self-assessment by subtracting total liabilities from total assets using data directly from your accounting software, as this provides the simplest method you can calculate independently.

• Seek professional valuation assistance for complex businesses with multiple revenue streams, when preparing for sale, or during investment discussions, as calculated valuations serve as guides rather than guaranteed sale prices.

What is a company valuation?

Company valuation is the process of determining your business's monetary worth. This estimated value doesn't guarantee a sale price, but serves three key purposes:

• Financial reporting: Meet accounting and regulatory requirements, such as the Royal Institution of Chartered Surveyors (RICS) guidance on sustainability and environmental, social and governance (ESG) factors in commercial property valuation
• Securing finance: Support loan applications and investor discussions
• Sale negotiations: Establish a starting point for business transactions

Why company valuation matters

Knowing your company's value isn't just for when you're ready to sell. It helps you make smarter decisions every day. A clear valuation can support loan applications, guide your business strategy, and help with tax planning. It gives you a benchmark to track your growth and understand your financial health with confidence.

How to value a company

1. Book value calculation

You can work out your company’s book value using the assets and liabilities listed on your balance sheet.

Book value formula

Book value = Assets - Liabilities

In other words, it's the net value of everything the company owns after debts are subtracted.

Assets include property, inventory, equipment, cash reserves, accounts receivable, and intellectual property like patents. Liabilities encompass debts such as loans, unpaid taxes, and accounts payable (bills you owe), but it's important to distinguish business from personal debts. For instance, official UK tax guidance states that Income Tax and Capital Gains Tax should be excluded as they are considered personal not business liabilities.

If a business owned £10m in assets and owed £5m in debts, the book value would be £5m.

2. Liquidation value calculation

Liquidation value is similar to book value, but it uses what your assets would sell for today instead of the figures recorded on your balance sheet. It asks what owners would be left with if they sold off all assets and repaid all debts.

This difference from book value matters because asset prices change over time, and you need to factor in what makes each asset different. For example, when valuing biological assets like fish stocks, factors such as their age and biomass are taken into account.

Liquidation valuation formula

Company value = Liquidation value of assets – Liabilities

3. Multiply company earnings

Earnings-based valuation works out what a company is worth by multiplying its annual profit by an industry multiple. This method focuses on your business's profit-generating ability rather than just assets.

Earnings-based valuation formula

Company value = Earnings x Multiplier

Two key variables determine your earnings-based valuation:

Earnings options:

• Net profit: Your bottom-line earnings after all expenses
• EBITDA: Earnings before interest, taxes, depreciation, and amortisation

Multiplier ranges:

• Standard businesses: 2x to 5x earnings
• High-value businesses: 6x to 10x+ earnings

Factors that increase multipliers:

• Customer loyalty: Repeat business and long-term contracts
• Market position: Exclusive territories or dominant market share
• Intellectual property: Patents, trademarks, or proprietary processes
• Industry standards: Each sector has typical multiplier ranges

4. Multiply company revenue

Revenue-based valuation multiplies your annual sales by an industry-specific number. Unlike earnings-based methods that focus on profit, this approach values your business based on total sales volume, making it useful for high-growth companies with lower current profits.

Times revenue formula

Company value = Annual revenue x Multiplier

As with the earning-based calculation, the multiplier plays a big role in your final valuation. There are often accepted industry-specific multipliers. A local accountant or business broker will know the multiplier range for your type of business.

5. Multiply free cash flow

Free cash flow valuation multiplies the money remaining after all operating costs and planned investments by an industry multiplier. This method shows how much cash your business actually generates for owners, making it particularly useful for capital-intensive businesses.

Free cash flow formula

Company value = Free cash flow x Multiplier

Best for businesses requiring significant investments:

• Equipment upgrades: Manufacturing or technology businesses
• Property improvements: Retail stores needing refits
• Digital transformation: Companies updating systems

Key benefit: Shows whether your business generates enough cash to fund growth while maintaining operations.

You need to analyse your future capital needs in detail, so it’s a good idea to get professional help with this calculation.

6. Entry-cost analysis

Entry cost analysis looks at what it would cost to build your business from scratch, including startup expenses, equipment and the cost of winning your first customers.

Best for asset-heavy businesses:

• Manufacturing: Equipment and facility costs are primary value drivers
• Retail: Store setup and inventory represent most business value
• Service businesses: With standard, replicable processes

Better suited to businesses without:

• Unique relationships: Long-term client contracts or partnerships
• Intellectual property: Patents, trade secrets, or proprietary methods
• Brand value: Established reputation and customer loyalty
• Specialised expertise: Hard-to-replace skills or knowledge

7. Market capitalisation

For publicly traded companies, market capitalisation reflects the company’s value. It is the total combined value of all the company’s shares.

Share price formula

Company value = Share price × Number of shares

8. Enterprise value

Enterprise value shows the total cost to buy a publicly traded company by adjusting market capitalisation for its debt and cash. When you work out enterprise value, you also look at how much the company owes. Financial reports usually show the fair value of debt such as bonds and private placement notes.

Enterprise value formula

Company value = Market capitalisation + Cash − Debts

This gives a fuller picture than market capitalisation alone for publicly traded companies. You can also compare enterprise value with the debt to equity (D/E) ratio to see how much of the company’s operations are funded by debt rather than by its own cash flow.

Factors that affect company value

A valuation is about more than just your current numbers. Several factors can influence your company's worth, including your brand's reputation, customer loyalty, and intellectual property. In some cases, value is tied to physical locations; for instance, UK tax guidance notes that some businesses have ‘inherent’ goodwill attached to the land and buildings, which is especially relevant for hotels, restaurants, and breweries.

Market trends and the overall health of your industry also play a big part. Understanding these factors helps you see the bigger picture of your business's value.

Getting professional help with company valuation

Valuing a company requires choosing the right method for your specific situation. Multiple approaches exist because different scenarios call for different calculations.

When to use professional help:

• Complex businesses: Multiple revenue streams or unique assets
• Sale preparation: Ensuring accurate market-ready valuations
• Investment discussions: Supporting loan or investor presentations

Do-it-yourself valuation options:

Book value is the simplest method you can calculate yourself. Pull your balance sheet data directly from accounting software like Xero to get instant asset and liability figures.

Important limitations:

Calculated valuations are a guide, and actual sale prices can be higher or lower. Market conditions, buyer demand, and negotiation skills all influence final transactions. Use your valuation as a starting point, not a guaranteed outcome.

Ready to get professional guidance? You can find an accountant in the Xero advisor directory who can help you choose the best valuation approach for your business.

With a clear valuation in hand, you can manage your finances with greater confidence. Tools like Xero give you real-time insights into your assets, liabilities and cash flow so you can track your company’s worth over time with confidence. Try Xero for free.

FAQs on company valuation

Here are answers to some common questions about valuing a company.

How do you calculate the value of a company?

There are several ways to calculate a company's value. An asset-based approach subtracts liabilities from the value of your assets. An earnings-based approach applies a multiplier to your annual profit. The best method depends on your industry, business size, and the reason for the valuation.

How many times profit is a business worth?

A business is often valued at a multiple of its profit, but this multiplier can vary widely from 2x to over 10x. The exact number depends on your industry, growth potential, customer loyalty, and how stable your earnings are. An accountant can help you determine a realistic multiplier for your business.

What factors make a company more valuable?

Beyond strong profits, factors like a loyal customer base, recurring revenue, a well-known brand, and protected intellectual property can all increase a company's value. A strong management team and efficient operations also make a business more attractive to potential buyers or investors.