Exit Multiples: A Quick Way to Value a Business
Learn How to Get Fast and Accurate New Jersey Business Valuations With Exit Multiples
Exit multiples is something that you should be familiar with if you want to talk about a quick way to value companies. What an exit multiple is, it's usually a multiple of EBITDA, you know, earnings before interest, taxes and depreciation. For example, if I have an EBITDA multiple of 8, which means 8 times my EBITDA, and my EBITDA is $250,000, the value of that company is 2 million. And this is used a lot.
You'll hear people talk about, what is that company worth? Well, what's the EBITDA? And then they just multiply it by the industry that it operates in multiple, and that's how they figure out if they're over or under paying.
A quick and dirty way, but it's pretty accurate, actually. And you can use it in all kinds of businesses. You can use it in public companies, in private companies. You know, for example, what is the Dunkin' Donuts worth? Well, there's a multiple out there. If you just simply take the EBITDA of the Dunkin' Donuts and multiply it by this multiple, that's what it's worth. I mean, of course there's going to be, you have to take a look at where it is. Maybe it's in New York Times, it's worth a lot of more money. But the EBITDA multiple is a very, very powerful way to figure out the value of a company quickly. And we use it all the time. We use it to value our perpetuity multiple, and we also use it to check the value of the company, to make sure it makes sense. If the EBITDA multiple is 10 or 20, and our value is only coming up at 6 or 7, we will be concerned and do some kind of investigation.Return to Video Gallery