How do you value a business?

The Holistic Accountant

Mena and Stuart discuss how a business is valued:

• The value of a business is equal to the present value of its future cash flows. Therefore, we must ask (1) what cash profit will it generate and (2) what are the risks associated with this income stream i.e., how likely is it that the business will generate these expected profits?
• They discuss some 'rules of thumbs': multiple of sales or reoccurring income, users (IT business), EBIT, etc.
• And they need to look for evidence – sales of comparable businesses.

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