A short video describing the most common method of business valuation, The Future Maintainable Earnings Method.
The Future Maintainable Earning Method is commonly used to value a profitable business. It is a simplification of the Discounted Cash Flow Method.
Profit means different things to different people. You should make sure either you are talking about the total owners’ income or income after all the wages, salary and other expenses. Once you determine the profit you should use a right multiple i.e. to calculate owner’s return multiple should be between 1-2 and to calculate EBIT multiple should be between 1.5-3 (multiple 3 is used only if the business is really good).