Business Valuation Methods, Explained
There are three recognized approaches to valuing a business —income, market, and asset— and a handful of methods under each. A credible valuation applies more than one and explains why the chosen indications carry the weight they do.ExitSight includes the seven methods below plus the discounts, goodwill, and option models that accompany them. Each entry notes the worksheet name used inside the app, which is shorter than the formal name of the method.
| Approach | Principle | Methods in ExitSight |
|---|---|---|
| Income | A business is worth the present value of the earnings it will produce for its owner. | Multiple of discretionary earnings, capitalized earnings, discounted cash flow, excess earnings goodwill |
| Market | A business is worth what buyers have recently paid for similar businesses. | Comparable sales, industry revenue and SDE multiples |
| Asset | A business is worth no less than its assets less its liabilities, restated to market. | Adjusted book value, orderly and forced liquidation |
The methods, one by one
Multiple of Discretionary Earnings
Income approachRecast earnings available to a single working owner, multiplied by a factor built from seven scored value drivers rather than picked out of the air.
Formula: Value = Discretionary earnings × Multiple (2–7, set by the value-driver score)
In the app: Earnings Multiple
Read the discretionary earnings guide ›Capitalized Earnings Method
Income approachOne stabilized earnings figure divided by a capitalization rate. The cleanest method when next year genuinely looks like last year.
Formula: Value = Stabilized earnings ÷ Capitalization rate
In the app: Capitalized Earnings
Read the capitalized earnings guide ›Discounted Cash Flow Method
Income approachA five-year forecast of free cash flow plus a terminal value, each year discounted at a rate built up from observable components.
Formula: Value = Σ CFₜ ÷ (1 + r)ᵗ + Terminal value ÷ (1 + r)⁵
In the app: Discounted Cash Flow, Net Present Value, Adjusted Present Value
Read the discounted cash flow guide ›Comparable Sales & Industry Multiples
Market approachPrice-to-revenue, price-to-SDE, and price-to-EBITDA multiples drawn from actual sales of similar companies, applied to your figures.
Formula: Value = Your metric × Median multiple from comparable sales
In the app: Market Comps
Read the market comparables guide ›Adjusted Book Value & Liquidation
Asset approachRestate every asset and liability from book to market value. Sets the floor beneath the income methods and the going-concern test.
Formula: Value = Assets at market − Liabilities at market
In the app: Business Goodwill worksheet (net tangible assets)
Read the adjusted book value guide ›Excess Earnings & Business Goodwill
Income approachEarnings above a fair return on tangible assets are capitalized separately as goodwill, then added to adjusted asset value.
Formula: Goodwill = (Earnings − Fair return on net tangible assets) ÷ Goodwill cap rate
In the app: Business Goodwill
Read the goodwill guide ›Stock Option & Equity Grant Valuation
Specialized approachBlack–Scholes pricing for options, warrants, and equity grants, so contingent equity is not counted at face value.
Formula: Call = S·N(d₁) − K·e^(−rT)·N(d₂)
In the app: Stock Option Valuation
Read the option valuation guide ›How the indications get reconciled
Seven methods produce seven numbers. ExitSight's All Valuation Methods worksheet lists them side by side with the weight you assign, computes the weighted conclusion, and charts the range so an outlier is obvious. The same table prints as Table 8 of the report, with your stated reason for each weight.
| Method | Approach | Value | Wt. | Weighted |
|---|---|---|---|---|
| Multiple of discretionary earnings | Income | $1,223,560 | 35% | $428,246 |
| Discounted cash flow | Income | $872,871 | 25% | $218,218 |
| Capitalized earnings | Income | $883,415 | 15% | $132,512 |
| Excess earnings goodwill | Income | $835,643 | 10% | $83,564 |
| Market comparables | Market | $1,050,055 | 10% | $105,006 |
| Adjusted present value | Income | $911,406 | 5% | $45,570 |
| Concluded value | 100% | $1,013,116 |
Figures from the Riverbend Machine Works sample engagement in thesample valuation report. Adjusted book value is computed as the floor beneath these indications and carries no weight here.