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Valuation: Construction Business
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:
|Return on Investment (ROI) Valuation||Medium (15%)||Project-based nature can make ROI a relevant metric.|
|EBITDA Multiplier||High (25%)||Reflects operational profitability in an industry with significant capital expenditures.|
|Simple Cash Payback||Medium (15%)||Given the project timelines, understanding payback can be crucial.|
|Revenue Multiplier Valuation||Medium (15%)||Revenue can be a primary measure of growth and success in construction.|
|Balance Sheet Valuation||High (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 Valuation||Low (5%)||The cyclical nature and project timelines can affect consistent cash flows.|