Business valuation-assessing-business-value-at-the-desk

Compa­ny valua­ti­on: This is how much your compa­ny is worth

Around 70 % of all entre­pre­neurs estima­te the value of their compa­ny as too high. With this figure, Ingo Claus from KERN ? Unternehmens­nachfolge ? opened his lectu­re on the topic of business valua­ti­on at the IHK Osnabrück ? Emsland ? Grafschaft Bentheim.

This overe­sti­ma­ti­on often has serious conse­quen­ces in practi­ce. In the case of a planned sale of a compa­ny, an exces­si­ve­ly high valua­ti­on often leads to exces­si­ve price expec­ta­ti­ons and thus to a Unsalea­bi­li­ty of the compa­ny.

In a nutshell: How is the enter­pri­se value calculated?

  • The value of the entire compa­ny or a share in the compa­ny is deter­mi­ned by a compa­ny valuation.
  • Materi­al values, such as Vehic­le fleet, machi­nery and land, as well as intan­gi­ble assets, such as Know-how, brand, patents and experi­ence of the staff are assessed.
  • Diffe­rent valua­ti­on methods take into account both the substance of the compa­ny and venture a forecast for the future on the basis of past earnings.
  • The compa­ny valua­ti­on is indis­pensable for further negotia­ti­ons - for examp­le for a succes­si­on. It is admit­ted­ly not identi­cal with the final purcha­se pricebut an important basis for the Compa­ny sale.
  • There are various methods of calcu­la­ti­on that have indivi­du­al advan­ta­ges and disad­van­ta­ges. The purcha­se price corri­dor deter­mi­ned by means of a well valid compa­ny valua­ti­on offers a negotia­ti­on framework.
  • The The capita­li­sed earnings value method has gained accep­tance in Germany.

Calcu­la­te enter­pri­se value

Are you looking for a first method to estima­te the value of a compa­ny? Our compa­ny value calcu­la­tor helps you to quick­ly and easily calcu­la­te the value of a compa­ny based on various finan­cial indica­tors and key figures.

To use the calcu­la­tor, simply enter the requi­red data in the appro­pria­te fields and let the tool do the calcu­la­ti­ons for you.

The calcu­la­tor offers an intui­ti­ve user inter­face and takes into account various factors such as profit and indus­try to give you an initi­al estima­te of the company’s value.

Let us discuss the value of your business in a free initi­al consultation 

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What is the enter­pri­se value

The enter­pri­se value is a subjec­ti­ve valua­ti­on of all tangi­ble and intan­gi­ble assets of a compa­ny. This serves as a basis for negotia­ting Corpo­ra­te transac­tionsbut can also be used as Key figure of a long-term corpo­ra­te strategy serve.

However, the value of a compa­ny is not limit­ed to the sum of all assets. The Positi­on of the compa­ny on the market, good reputa­ti­on or syner­gies must also be evalua­ted. There is no standard formu­la for this, but is rather subject to indivi­du­al conside­ra­ti­on by the evaluator. 

If you use the Calcu­la­te enter­pri­se value If you want to estima­te the value of a compa­ny, various model­ling methods can help you, but not every method is suita­ble for every situa­ti­on. Moreo­ver, all methods are based on subjec­ti­ve assumptions.

There­fo­re, buyers and sellers can arrive at diffe­rent compa­ny values despi­te the same compa­ny figures. Even when selling a listed compa­ny, sales prices above market capita­li­sa­ti­on are negotia­ted, although this is conside­red the best estima­te of the company’s value.

Exces­si­ve purcha­se price due to the so-called heart-blood return

While entre­pre­neurs value not only the tangi­ble assets but also the work and their heart and soul.they have inves­ted in the compa­ny, an acqui­rer thinks first and foremost about what profits he can genera­te with the compa­ny in the future. Becau­se of this diffe­rent perspec­ti­ve, both sides often come to very diffe­rent conclusions.

The merchant pays nothing for the past!

Many business owners find it diffi­cult to prepa­re a planning state­ment for at least the next three years. However, this outlook is of great importance, becau­se it is true: the business­man pays nothing for the past!

Even if Enter­pri­se value and purcha­se price not the same there is a very close connec­tion. The credi­ble deriva­ti­on of the capita­li­sed earnings value thus not only serves to deter­mi­ne the purcha­se price claim, but also to facili­ta­te the negotia­ti­ons. Enforce­ment of an attrac­ti­ve purcha­se price.

By the way, it is possi­ble to increase the value of a compa­ny. Read about this:

How to increase the value of your business and prepa­re for business succession

Overview of valua­ti­on methods

Business valua­ti­on proce­du­res for the compa­ny can be classi­fied in various ways. On the one hand, business valua­tions for the conti­nua­tion or the disso­lu­ti­on of a compa­ny can be distin­gu­is­hed. For the disso­lu­ti­on of a compa­ny, the Liqui­da­ti­on value as a form of Substance value methods be used.

Further­mo­re, a diffe­rent data basis can be used for the valua­tions. The net asset value method uses balan­ce sheet data for this purpo­se, while the capita­li­sed earnings value and Discoun­ted cash flow methods Use data from the P&L.

In order to arrive at a plausi­ble and at the same time well-founded purcha­se price claim In order to prepa­re for the upcoming talks with poten­ti­al buyers, a profes­sio­nal compa­ny valua­ti­on is necessary.

In most cases, entre­pre­neurs have no or the wrong idea of what dispo­sal proceeds are reali­stic for their business. In additi­on, it is important to maintain an overview of the decisi­ve factors in the valua­ti­on methods:

Process graphic influencing factors on the calculation of the company value

Looking ahead with the help of the capita­li­sed earnings method

In additi­on to the net asset value and multi­pli­er methods, the capita­li­sed earnings method is used in parti­cu­lar for the valua­ti­on of compa­nies in Germa­ny. This is a Proce­du­re accept­ed by business, chambers and tax autho­ri­tieswhich, when calcu­la­ting the value of the compa­ny, adjus­ts the results of the past in order to subse­quent­ly forecast a future develo­p­ment that is as plausi­ble as possible.

This is becau­se the results of the capita­li­sed earnings method are essen­ti­al­ly depen­dent on a as objec­ti­fied an estima­te as possi­ble of future surplu­s­es of the compa­ny. Subse­quent­ly, the reali­stic risk assess­ment is parti­cu­lar­ly important for the capita­li­sa­ti­on interest rate to be determined.

Tax office accepts conclu­si­ve income capita­li­sa­ti­on approach

A conclu­si­ve value apprai­sal accor­ding to the capita­li­sed earnings method is usual­ly accept­ed by the tax office and is thus a good alter­na­ti­ve to the method defined in § 199 of the Valua­ti­on Act (BewG)”, under­lines Ingo Claus. The value of the compa­ny is thus more orien­ted towards the market value. This is becau­se the resul­ting lower tax burden or lower settle­ment sums vis-à-vis co-heirs thus lead to a lower finan­cial burden for the compa­nies to be transferred.

Examp­le calcu­la­ti­on of capita­li­sed earnings value method

The value of a compa­ny of the examp­le GmbH is to be estima­ted with the help of the capita­li­sed earnings value method.

The follo­wing compa­ny figures are available:

  • Annual surplu­s­es (periods 1 to 5): 100, 105, 115, 125, 130
  • Annual surplu­s­es from period 6: 130 with 2.5 % growth per year
  • Risk-adjus­ted discount rate: 6.5 %

This results in the follo­wing calculation:

  • Discoun­ting of annual surplu­s­es from year 6:

130 / (0.065 ? 0.025) = 3250 EUR

3250/ 1.065^5 = 2372.11 EUR

  • Discoun­ting of the annual surplu­s­es (period 1 to 5):

100/1,065 + 105/1,065^2 + 115/1,065^3 + 125/1,065^4 + 130/1,065^5 = 473,72 EUR

  • Enter­pri­se value = 473.72 + 2372.11 = EUR 2845.83

Advan­ta­ges and disad­van­ta­ges of the capita­li­sed earnings method


Compa­ny valua­ti­on method widely used in Germa­ny and accept­ed by the tax autho­ri­ties

calcu­la­ti­on compared to other methods slight­ly

Adapta­ble risk factor


Risk factor offers possi­bi­li­ty of manipu­la­ti­on

Forecas­ting the future not always suitable

The net asset value method

The net asset value can be calcu­la­ted for a going concern or a liqui­da­ti­on. In the latter case, the liqui­da­ti­on value is calcu­la­ted. In order to calcu­la­te the liqui­da­ti­on value, the Fair values of all recog­nis­ed and unreco­g­nis­ed assets added together and all outstan­ding liabi­li­ties deduc­ted, becau­se these must be serviced from the proceeds of the sale.

In additi­on, all costs incur­red by the liqui­da­ti­on must be deduc­ted. The The advan­ta­ge of the net asset value method is a relatively simple calcu­la­ti­on of the value of a compa­ny liqui­da­ti­on. In additi­on, this valua­ti­on method can serve as a lower limit of the enter­pri­se value in the case of a going concern.

The actual asset value or going concern statics is not based on the assump­ti­on of a break-up of the compa­ny. It This is the follo­wing oppor­tu­ni­ty cost analy­sis: The value of the business is equal to the cost that would be incur­red in creating an exact copy of the business. So if an equiva­lent proper­ty with equiva­lent real estate and with equiva­lent machi­nery were purchased.

This means that the net asset value is based on the Repla­ce­ment value of the assets recog­nis­ed in the balan­ce sheet and of the off-balan­ce sheet assets.

The resto­ra­ti­on value must be distin­gu­is­hed from the liqui­da­ti­on value. The latter arises from the break-up of the enter­pri­se and the subse­quent Sale of the indivi­du­al elements.

The liqui­da­ti­on value corre­sponds to the amount that can be achie­ved through the break-up of the compa­ny and the subse­quent indivi­du­al sale.

The liqui­da­ti­on value of the non-opera­ting assets may additio­nal­ly be recog­nis­ed and the borro­wed capital must be deduc­ted. The asset value method also has the advan­ta­ge that a going concern is assumed, which is the case in most corpo­ra­te transactions.

However, one important factor is not conside­red: the ?know-how? of the old compa­ny. Becau­se work proces­ses and trained person­nel with experi­ence on these machi­nes can neither be copied nor evaluated.

Advan­ta­ges and disad­van­ta­ges of the net asset value method


Simple calcu­la­ti­on

“Tangi­ble value” that is also suita­ble for laypersons


Negle­c­ting factors such as custo­mer base or compe­ti­ti­ve positi­on

No conside­ra­ti­on of profitability

Discoun­ted cash flow method (DCF method)

In the discoun­ted cash flow method, the free (available) cash flows are used as the start­ing point for the compa­ny valua­ti­on. The enter­pri­se value corre­sponds to the sum of the free cash flows discoun­ted with a risk-adequa­te interest rate.

For the estima­ti­on of free cash flows, the business plans of the follo­wing years can be prepared indivi­du­al­ly. Alter­na­tively, the Value genera­tors Rappa­port process can be appli­ed. Here, start­ing from current Data such as turno­ver, return on sales and invest­ment in working capital and an estima­ted future growth in turnover.

The DCF method can be appli­ed in 2- or 3-phase models. In the first phase the cash flows for the next 5 to 10 years are estima­ted indivi­du­al­ly. In the last phase, a constant free cash flow or a cash flow with constant growth is assumed.

The inter­me­dia­te phase in the 3-phase model is inten­ded to plausi­bly model a transi­ti­on between the last planned phase and the residu­al value phase. This is usual­ly based on a linear or Exponen­ti­al diffu­si­on of cash flows over 3 to 5 years gone out.

The Advan­ta­ge of the discoun­ted cash flow methods is that it is based on current compa­ny figures. This models the initi­al situa­ti­on in the best possi­ble way. However, the enter­pri­se value depends stron­gly on 2 factors, the risk-adequa­te discount rate and the free cash flows in the first phase. An incor­rect estima­te of these leads to large deviations. 

Advan­ta­ges and disad­van­ta­ges of the discoun­ted cash flow method


Good adapta­bi­li­ty to indivi­du­al and current compa­ny situa­tions

Result well compa­ra­ble

Makes any risks of the invest­ment clear at an early stage


Risk factor can be a weak point in case of poor choice

Forecas­ting the future not always suitable

Multi­pli­er procedure

The multi­pli­er method is a rough estima­te of the enter­pri­se value. Here the Stock market value and past corpo­ra­te transac­tions analy­sed and related to balan­ce sheet ratios. This is how common multi­pli­ers have develo­ped. For an exact deter­mi­na­ti­on of the correct multi­pli­er, only the corpo­ra­te transac­tions of compa­ra­ble compa­nies are used.

These methods are parti­cu­lar­ly suita­ble for a Plausi­bi­li­ty check of the enter­pri­se value calcu­la­ted with other methods. Nevert­hel­ess, the publicly available multi­ples always only repre­sent valua­ti­on corri­dors of past transac­tions. Since a compa­ny is not arbitra­ri­ly compa­ra­ble, corre­spon­ding adjus­t­ments and plausi­bi­li­ty checks must be made in advan­ce of a multi­pli­er valua­ti­on. This must be taken into account.

Advan­ta­ges and disad­van­ta­ges of the multi­pli­er method


Widely used assess­ment metho­do­lo­gy

Can be calcu­la­ted quick­ly and easily

Needs little data for first results


Due to the lack of data, not very accura­te

Multi­pli­er is a weak point that can be argued about

An appli­ca­ti­on without appro­pria­te analy­sis, subse­quent adjus­t­ment and plausi­bi­li­ty check often leads to signi­fi­cant­ly infla­ted compa­ny values.

The venture capital method

Start-ups can be valued using the venture capital method. The Value of these compa­nies lies in the develo­p­ment of new concepts and techno­lo­giesnot in assets, sales or positi­ve cash flows. There­fo­re, the previous valua­ti­on proce­du­res cannot be applied.

There­fo­re, the value of the compa­ny is first calcu­la­ted at a time when it is compa­ra­ble to other compa­nies, for examp­le in 10 years. This enter­pri­se value is then discoun­ted over the assumed durati­on. However, a higher discount rate is used than for incumb­ents becau­se the risk is much higher.

Since a valua­ti­on without numbers can often not be target-orien­ted, the venture capital method is often dispen­sed with in German-speaking count­ries and the DCF metho­do­lo­gy descri­bed above is used instead.

Advan­ta­ges and disad­van­ta­ges of the venture capital method


Enables calcu­la­ti­on despi­te missing data


Uncer­tain and complex

Compa­ny valua­ti­on accor­ding to the princi­ples of the IDW

Multi­ples common­ly used in the indus­try are often not suffi­ci­ent to deter­mi­ne a company’s value, as they are not tailo­red to the indivi­du­al case and are often outda­ted. To deter­mi­ne a Compa­ny valua­ti­on accor­ding to the princi­ples of Insti­tu­te of Public Auditors in Germa­ny (IDW) we analy­se the annual finan­cial state­ments of the past three finan­cial years and create an earnings value with the help of corpo­ra­te planning.

The capita­li­sed earnings value is identi­cal to the future distri­bu­ta­ble earnings discoun­ted to the valua­ti­on date. The discoun­ting is carri­ed out using an interest rate adjus­ted to the respec­ti­ve entre­pre­neu­ri­al risk.

The princi­ples of the IDW are the IDW-S1 = income capita­li­sa­ti­on approach. This is the method of business valua­ti­on accept­ed by the tax office and excludes the typical errors of a multi­pli­er valua­ti­on by a sound IDW-S1.

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Valua­ti­on SME

Accor­ding to the Insti­tu­te for SME Research (IfM), every year in Germa­ny more than 20,000 SMEs are faced with an unresol­ved Compa­ny succes­si­on confron­ted. If you too want to change your Sell compa­ny the first step towards a regula­ted succes­si­on should be a well-founded evalua­ti­on of the company.

Since the metho­do­lo­gies for deter­mi­ning value are appli­ed analog­ous­ly to large and small compa­nies, the questi­on arises whether there are not a few Small but crucial diffe­ren­ces in the valua­ti­on of SMEs gives.

Quali­ta­ti­ve characteristics

The diffe­ren­tia­ti­on from large compa­nies is not only based on key figures and finan­cial parame­ters. This means that SMEs have a few very speci­fic charac­te­risticsthat work well in Ihlau, Duscha, Gödecke: Special features in the valua­ti­on of SMEs (page 6 ff.) be descri­bed. After that, the charac­te­ristics are to be divided into the 4 areas of business model, owner, infor­ma­ti­on and financing.

For examp­le, an elemen­ta­ry diffe­rence to large compa­nies is the limit­ed access to the capital market and the often low equity ratio. In additi­on, there is the strong influence of the owners and the lack of diver­si­fi­ca­ti­on. Simpli­fied proces­ses in accoun­ting or a lack of corpo­ra­te planning or simpli­fied control­ling bring the decisi­ve diffe­ren­ces to light.

Against this background, the questi­on natural­ly arises all the more whether the Business valua­ti­on of SMEs not funda­men­tal­ly diffe­rent must/should be.

Business valua­ti­on of SMEs

In Moxter 1983, p. 123 the phrase “Valuing means compa­ring” comes up. This is the basic princi­ple of any business valua­ti­on. It means, for examp­le, compa­ring obser­va­ble prices or returns for similar assets. Exact­ly on this point However, a valua­ti­on of large compa­nies differs. Not in metho­do­lo­gy, but in complexity.

Of course, a group valua­ti­on is highly complex and anything but trivi­al. Due to the lack of compa­ra­ti­ve values the valua­ti­on of an SME is no less complex. Due to their often very special and speci­fic charac­te­ristics, SMEs in parti­cu­lar are only compa­ra­ble to a very limit­ed extent with the compa­ra­ble compa­nies used.

In Germa­ny, the capita­li­sed earnings method has become estab­lished for SMEs. This is based on the given valua­ti­on occasi­on in this environ­ment. Unlike in the transac­tion environ­ment, where the DCF gross method is mostly used, the valua­ti­on occasi­on for an SME is often a pending business succession.

Within this frame­work, it goes without saying that a sound analy­sis and the special circum­s­tances of the SME are taken into account. The focus here is on the Deter­mi­na­ti­on of future achie­va­ble revenues (taking into account new or old holders) and a suita­ble risk-equiva­lent capita­li­sa­ti­on rate.

The price for the compa­ny is ultim­ate­ly the result of supply and demand and, of course, a well-managed negotiation.

Typical mista­kes in business valuation

Avoid the 7 most expen­si­ve mista­kes in business valua­ti­on! In a exclu­si­ve online seminar our experi­en­ced expert gives you the best tips on how the value and price of a venture should be composed.

Errors can quick­ly arise in business valua­tions. The typical errors can be traced back to three sources of error.

The use of incon­sis­tent data:

  • Use of incon­sis­tent data (e.g. mixing real and nominal values)
  • Use of indirect/calculated data leads to false depen­den­ci­es (e.g. depre­cia­ti­on, interest and dividends do not direct­ly depend on turnover)

The follo­wing factors are often negle­c­ted when discounting:

  • Diffe­rent risk-free interest rates for longer and shorter periods
  • Distinc­tion between secure and uncer­tain cash flows and their correct discount rate

Model­ling error:

  • Valua­ti­on model does not fit the future corpo­ra­te strategy
  • Valua­ti­on model does not fit compa­ra­ble companies
  • Compa­ny valua­ti­on is only prepared for one scena­rio, sensi­ti­vi­ty analy­sis and Monte Carlo simula­ti­on are not used
Image with link to the company value calculator


If you need a suita­ble compa­ny valua­ti­on, for examp­le for the Compa­ny acqui­si­ti­onyou should defini­te­ly read the Deter­mi­ne the objec­ti­ves of the assess­ment and select an appro­pria­te method for the purpo­se of the assess­ment.. As you have learned, there are big diffe­ren­ces in the valua­ti­on of SMEs, large compa­nies or start-ups.

For family businesses, the deter­mi­na­ti­on of the business valua­ti­on on the basis of the capita­li­sed earnings value method is in many cases meaningful. We will be happy to assist you with this important topic.