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Showing posts from November, 2015

How to Value a Start-up

How do you value a start-up business, especially when it's seeking investment? Well-established companies can be valued in a number of ways, but traditionally you would multiply their latest reported annual earnings (sometimes called EBITDA or PBT) by a multiple known as a PE (Price/Earnings) Ratio. Google's is currently 32 and General Motors is 13. The multiple might be large if the company is in a growth sector like technology, or if the company has a solid history of growth that buyers of their stock believe will continue. The multiple might also reflect the size of the company which is an indicator of stability and probability for steady profit, and therefore dividends (something you should never expect from a start-up). There may also be speculation that the company might be an attractive acquisition, which might temporarily push the PE ratio higher until the rumour is either dismissed or proved. On the other hand, if a company has a history of falling profits, then its mu