Methods of Valuing a Business
For Purchase or Sale

Raymond S. Kulzick, DBA, CPA


1. Asset-oriented

1a. Book value

1b. Assets at market value

- value assets (and liabilities) at current value
- include value of goodwill & other intangibles

2. Earnings-oriented

2a. Capitalize earnings

2a1. One-year earnings base

- adjust earnings, apply multiplier

2a2. Multi-year (5) earnings base

- adjust each year, average, apply multiplier

2b. Capitalize individual assets plus excess earnings (irs method)

- compute average adjusted 5-year earnings
- subtract normal earnings on net assets (5 year)
- apply multipliers to each asset & excess earnings

2c. Multiplier of cash earnings

- cash taken by owners (over normal salary)
- plus depreciation and increase in cash
- less capital investments
- apply multiplier

2d. Discounted future cash flows (present value)

- need to project 5-year cash flow
- discount based on risk & size

2e. Multiplier of stabilized earnings

- project reasonable current year income statement
- adjust earnings
- apply multiplier

3. Market value

3a. Sale of competitors

- compare to recent sales of competitors

3b. Rules of thumb

- gross sales: sales times industry multiplier
- gallons sold: for gas stations
- rent multiplier: commercial property


Hyden, S. D. & Mard, M. J. (1995). Advanced business valuation. Florida Institute of Certified Public Accountants.

Ledereich, L. & Siegel, J. G. (1990, February). What's a business worth? Valuation methods for accountants. The National Public Accountant, pp. 18-22.

Copyright 1999 Raymond S. Kulzick. All rights reserved. 991220.

This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.


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Copyright 1999 Kulzick Associates, PA - Last modified: September 13, 2008