Valuing your company: understand EBITDA, test the assumptions
An EBITDA multiple provides a first indication of operating business value. The quality of transferable earnings and the reasoning behind the multiple matter. The resulting enterprise value is neither the price of your shares nor the cash available after a sale.
The essentials
- Establish sustainable earnings before applying a multiple.
- A multiple is an assumption that needs support.
- Consider debt, cash and payment terms separately.
What earnings can a buyer actually take over?
EBITDA means earnings before interest, taxes, depreciation and amortisation. It helps focus attention on operating performance, but does not show cash available after investment, working capital movements, taxes and debt service.
A valuation should therefore bridge reported earnings to sustainable performance. A genuinely exceptional expense may justify an adjustment; recurring expenditure does not become exceptional merely by relabelling it. An owner's salary materially below market level also needs attention: a suitable successor will not work for free.
- Which adjustments are supported by evidence?
- What additional costs will arise after the handover?
- How transferable are customer relationships and management responsibilities?
Why one multiple cannot fit every SME
The multiples method combines an appropriate financial measure with a factor informed by comparable transactions or market observations. Sharing an industry is not enough: size, margins, growth, recurring revenue and risk profile need to be considered.
A cautious, central and higher scenario can make the discussion more useful. These are not statistical probabilities. They show which assumptions drive value and where further investigation will matter most.
Source: SECO · MultiplikatorverfahrenOne set of accounts, different assumptions
Our illustrative example starts with reported EBITDA of CHF 600’000. Add CHF 80’000 of evidenced exceptional expenditure and deduct CHF 50’000 for additional market-level management cost. Adjusted EBITDA is CHF 630’000.
Assumed multiples of 4, 5 and 6 produce operating values of CHF 2’520’000, CHF 3’150’000 and CHF 3’780’000. These factors are illustrations, not current Swiss industry benchmarks. A CHF 50’000 change in sustainable earnings changes value by CHF 250’000 at a multiple of 5.
- Document the earnings adjustments and multiple separately.
- Do not adjust away expenditure without a defensible reason.
- Avoid choosing a factor merely to support a desired price.
Illustrative assumptions, not market values or client transactions.
From a calculation to a negotiable offer
A valuation supports a decision. An achievable price also depends on the buyer, acquisition funding and acceptable terms. A discounted cash flow scenario can add a forward-looking view, but its forecasts still need scrutiny.
Annual accounts, current trading figures, owner remuneration, financial debt and a list of key dependencies are useful for an initial discussion. The calculator then shows how value, ownership sold and payment structure affect the capital available at completion.
Source: UBS · 5 Mythen rund um die UnternehmensbewertungCommon questions
Is the result a formal company valuation?
No. The calculator models your assumptions. A substantiated valuation requires a review of the business, financial information, comparables and transaction terms.
Can EBITDA be used directly as free cash flow?
No. Investment, taxes and working capital movements, among other factors, can materially change available cash flow.
Sources & further reading
General information. Examples and assumptions do not replace a review of your business or individual legal, tax and investment advice.
