Revenue has no bearing on value. Say you have $1 billion in revenue but are spending $2 billion to provide the service thus requiring an additional billion from investors each year. What is the value of that company? Think Movie Pass. Think Uber. Lots of public companies run at a loss hoping to eventually become profitable.
There are multiple methods of valuing a company. The most common is the earnings multiple. Or Multiple of Cash Flows. 5X EBIDTA What is your net income (minus depreciation, taxes and financed equipment payments). Basically gross profit minus SG&A expenses. Multiply that by 5 and you have a starting point. In other words, how much cash is it throwing off. What is the earning power of the company. You can also do a discounted cash flow method/net present value based on future cash flows. Say I give you $1M for your company and it runs in the same manner that it has been running. What is my annual rate of return on that investment? And you must account for depreciation and taxes and interest and equipment payments etc when doing it in this manner because your assets are worth less money each year. At the end of the period you use (say 10 years) did you get a decent return on the investment and is your principle still intact? From: CBB - Jay Fuller Sent: Monday, January 6, 2020 8:07 AM To: af@af.afmug.com Cc: memb...@wispa.org Subject: [AFMUG] Company Valuation Lets say for easy math purposes you bill approximately 1.5 million annually. I've heard 1.5 times annual revenue thrown around for a valuation purpose. There is a lot more to this figure but it's a place to start. So, if your company billed 1.5 million, you'd say your valuation was around $2.25 million. If you had 90 towers on your network - and you owned 60 of them (the steel, not the land they're on) , would you consider your network worth more than if you rented all 90? My take on this is yes, they could all be taken down and converted to cash, so the fact we own towers vs. rent them makes our network more valuable. What say you? Thanks. -------------------------------------------------------------------------------- -- AF mailing list AF@af.afmug.com http://af.afmug.com/mailman/listinfo/af_af.afmug.com
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