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4. Revenue Multiplier Valuation

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This is a straightforward approach wherein the value of a business is calculated by multiplying its revenue with a specific multiplier. The multiplier is typically based on industry standards or the sale of comparable businesses. For industries where profit margins can vary widely, this method might be less accurate than ones focused on profitability.

The ‘Revenue Multiplier Valuation’ method provides a way to value businesses based on their revenue figures and the perceived quality and stability of those revenues. It’s especially useful for industries or businesses where EBITDA might not fully capture the company’s potential value, like high-growth startups or companies with significant future growth potential.

The table below provides an explanation and an example for each of the input variables related to the ‘Revenue Multiplier Valuation’ method:

Input VariableExplanationExample
Revenue Last YearThis indicates the company’s total revenue during the previous fiscal year. It provides a baseline to measure growth or contraction in revenues.In 2022, a company reported revenues of £1 million. The “Revenue Last Year” would be £1 million.
Revenue This YearThis indicates the company’s total revenue for the current fiscal year. Comparing this with the revenue from the last year can give insights into growth patterns.In 2023, if the same company reports revenues of £1.1 million, the “Revenue This Year” would be £1.1 million.
Percentage Recurring RevenueRefers to the portion of the company’s revenue that is expected to continue in future periods without significant additional sales or customer acquisition efforts. This typically includes revenues from subscriptions, retainers, or long-term contracts. It’s an indicator of stability and predictability in the business model.If out of the £1.1 million revenue in 2023, £600,000 is from subscription services, the percentage recurring revenue would be 54.55%.
MultipleThe revenue multiplier reflects the value of the company in terms of its revenue. It’s a ratio that assigns a particular value to every dollar of company revenue. This multiple is often determined by market trends, industry benchmarks, and the perceived value of the company’s revenue streams.If companies in a particular industry typically sell for 5 times their annual revenue, then the multiple is 5. If the company’s revenue this year is £1.1 million, its valuation using the Revenue Multiplier would be £5.5 million (5 x £1.1 million).
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