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Valuation: Construction Business

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The weightings given to valuation methods can differ significantly across industries due to the unique financial structures, operational characteristics, and market dynamics of each sector.

Here’s a generalised guidance on the weightings for a construction business:

Valuation MethodWeightingRationale
Return on Investment (ROI) ValuationMedium (15%)Project-based nature can make ROI a relevant metric.
EBITDA MultiplierHigh (25%)Reflects operational profitability in an industry with significant capital expenditures.
Simple Cash PaybackMedium (15%)Given the project timelines, understanding payback can be crucial.
Revenue Multiplier ValuationMedium (15%)Revenue can be a primary measure of growth and success in construction.
Balance Sheet ValuationHigh (20%)Tangible assets (equipment, land, etc.) play a significant role in this sector.
Discounted Cashflow Valuation (DCF)Low (5%)Forecasting long-term is challenging due to the project-based nature of work.
Cash Flow ValuationLow (5%)The cyclical nature and project timelines can affect consistent cash flows.
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