Introduction

Valuing a company involves a careful consideration of its financial metrics and growth potential. In this article, we delve into a scenario where we project the future value of a company over a 7-year period. Key assumptions include the company’s current EBITDA, the EBITDA multiple used for valuation, and the compounded annual growth rate in EBITDA. By exploring these assumptions, we aim to estimate the potential worth of the company at the end of the specified period.

Assumptions

  1. Current EBITDA and EBITDA Multiple:The company’s current EBITDA is $2,900,000. The EBITDA multiple used for valuation is 3.5. The current value of the company is calculated as EBITDA times the multiple: $2,900,000 * 3.5 = $10,150,000.
  2. EBITDA Growth:The assumption is that the company’s EBITDA will grow at a rate of 25% per year on a compounding basis.
  3. EBITDA Multiple Growth:The EBITDA multiple used for valuation is expected to increase from the current 3.5 to 7.1 at the end of the 7-year period.

Estimating Future Value

To project the company’s value over the next 7 years, we’ll apply the assumptions to calculate EBITDA and the valuation multiple for each year.

Year 1:

  • EBITDA = $2,900,000 * 1.25 = $3,625,000
  • Valuation = EBITDA times Current Multiple = $3,625,000 times 3.5 = $12,687,500

Year 2:

  • EBITDA = $3,625,000 * 1.25 = $4,531,250
  • Valuation = EBITDA times Current Multiple = $4,531,250 times 3.5 = $15,859,375

(Continue compounding EBITDA growth and adjusting the multiple each year)

Year 7:

  • EBITDA = $2,900,000 * (1.25)^7 = $12,934,570 (rounded)
  • Valuation = EBITDA times Future Multiple = $12,934,570 7.1 = $91,801,227 (rounded)

Conclusion:

Based on the provided assumptions, the estimated value of the company after 7 years moves from approximately $10,150,000 to approximately $91,801,227. This projection considers both the compounded annual growth in EBITDA and the increase in the EBITDA multiple used for valuation. It’s important to note that these projections are based on assumptions that are readily achievable if you develop profit and multiple plans with us that are executed flawlessly.

If you would like to view a scenario plan of how we could move your company from X to 9X, please complete the Value Builder Questionnaire and schedule a one-hour meeting with me to show you how to achieve this rapid growth.

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