Current market environment – January 2022

The current market environment has recovered significantly in the second corona year. The low point was the summer of 2020. Depending on the size of the company, the country and the sector, the prices achieved are again close to or even above the pre-crisis level. Our market data on revenue, EBIT and EBITDA multiples can be found on our multiples page.

Company evaluation: quick help to orientation

Depending on your personal situation and the purpose of the valuation, it is advisable to use different valuation methods.

Case A: The company is profitable and stable

Case B: The company is not or not very profitable

Case C: The company is a startup or is growing strongly

Selection of the method according to the valuation occasion

Quick first indication

Company purchase & sale

  • Calculation of company value with a mix of methods
  • Valuation is carried out by the broker / M&A advisor (free indication before conclusion of contract)
  • Selling price is market driven and determined by best offer

Internal succession

  • Evaluate company with a mix of methods
  • Seek help from a neutral expert
  • Selling price is defined by family aspects, negotiating power or tax aspects
  • The sales price is usually lower than for an external sale (ø -20%)

Sale and purchase of minority interests

  • Determination of the company value with a mix of methods
  • Selling price is determined by negotiating power
  • Finding external buyers is difficult
  • are often sold on less favourable terms than majority stakes

Taxes, inheritance, gifts

The top factors for company value

Supply & Demand

There is no objective goodwill when you want to sell a business. The purchase price is determined by supply and demand.

Key financial figures

Companies are valued on the basis of their expected future return. An analysis of past and present returns provides an indication of possible future developments. The returns are reviewed for sustainability. Extraordinary gains and losses are eliminated. In which direction is the trend in sales and returns pointing? Can bad years be explained?

Trust in the seller and his documents

The greater the risks, the lower the value of the company. There must be no doubt as to the accuracy and completeness of any information provided. This unnecessarily increases uncertainty. It is important to prepare all documents accordingly. These are intended to present a transparent and error-free picture of the company. Bad surprises must be avoided at all costs.

Dependence of the company on the owner

For an investor, high dependence on the owner is a risk. How does the company run if one day the current owner is no longer there? When all his experience, knowledge and relationships with customers, suppliers are no longer there?

Market position of the company

How replaceable is the company for the customers? Is an interesting niche being filled? Are there sustainable competitive advantages? A clear focus, an excellent reputation and long-standing customer relationships are hard to copy.


A balanced customer base, replaceable business partners and low dependence on individual employees reduce the risk.

Growth prospects

Is the business model geared towards growth? What are the opportunities for a potential buyer? Are there attractive economies of scale?


What is the employee turnover rate? What’s the sick rate? What is the age structure? How sought after are the employees on the labour market?

Calculating business value: The 5 most common mistakes in valuation


Company owners understandably find it difficult to look at their own company objectively. Price expectations are often too high. So ask yourself: would you buy the company yourself at that price? Couldn’t you build a new company with that amount of money? How long would it take for a buyer to refinance the sale price in the form of profits? Tip: No one wants to be in the red 8 years after buying a company.

No market wage for the owner

A profit is only really a profit if all employees – and that includes the CEO! – were paid in line with the market. Anything else is a distortion of the earnings situation, which leads to an excessively high valuation.

Orientation towards large companies

The market leader in your industry is valued at three times sales? Amazon was worth billions before it even turned a profit. The EBIT multiples of listed companies are often in double digits. For companies with less than 20 million in sales, however, EBIT or EBITDA multiples between 3-6 are the rule. In our overview you will find realistic valuation multiples for a company of your size and your industry. Is your company the rare exception? Then you will notice this through regular, unsolicited and concrete offers to buy.

“Full warehouse” and “Great machinery”

Most valuation methods are based on the firm’s earnings. The company is seen as an instrument for generating future profits. Everything that is needed to be able to generate these profits in the future has already been taken into account. This includes machinery, warehouse, innovative products, etc.. If these things do not provide a higher profit in the future, they are worthless from this point of view. However, many owners would like to add, for example, the stock of goods to the income value of the company. That is not appropriate with these methods.

“The company has a lot of potential”

Almost every company has “still a lot of potential”. Taking advantage of this requires a lot of entrepreneurial spirit and resources and should therefore be cautiously factored into the valuation. If you want to exploit the full potential of the company, you should do this yourself and only sell the company later. No one believes a salesperson that the company is about to take a big leap in profits. So why would he want to sell at this exact time?

Overview: Methods to calculate the value of a company

Please also read our more detailed overview of the common valuation methods.

Multiplier method: What does the market pay for similar companies?

The valuation is based on current prices achieved by comparable companies. The selling price is considered to be a multiple of a basic key figure, such as EBIT, EBITDA or sales.

The determined value of the company corresponds to the value of the equity plus the financial debts (so-called “enterprise value”). For the value of equity, debts are deducted. The challenge with this method is the availability of data. Purchase prices of small and medium-sized companies are rarely published. A comparison with listed companies is useless, as much lower multiples are usually paid for smaller companies. Every month, NIMBO publishes the currently observed EBIT, EBITDA, EBITC and sales multiples for various countries, company sizes and industries. Please also read the detailed explanation of the individual multiples including a detailed example.

Simple capitalised earnings value method: sustainable earnings discounted in line with risk

The formula for this valuation method is: goodwill = revenue divided by capitalization rate. The capitalization rate represents that these earnings are only in the future and are subject to risk. The level of this assumed interest rate is subjective. For smaller companies, it is in the 10-20% range. Small changes in the interest rate have a large effect on the calculated goodwill. This capitalised earnings value method is referred to as “simple” because only an adjusted sustainable profit is assumed. One refrains from a detailed future earnings development. Of course, only profitable companies lead to positive ratings. Valuing unprofitable companies using this method is pointless. Here you will find more detailed information on the simple capitalised earnings value method including a calculation example.

Discounted Cash Flow Method (DCF): The Flexible Capitalised Earnings Value Method

This valuation method is closely related to the simple capitalised earnings value method described above. The interest rate is applied individually to the future cash flows (“free cash flows”) for the next 5 years. For the time thereafter, the so-called residual value is added. This is very similar to the simple income value described above. The sum of these discounted cash flows and the residual value of the company results in the enterprise value. This evaluation method is very flexible and, from a theoretical point of view, “best practice”. However, it is even more subjective and sensitive than the capitalized earnings method. Never trust a DCF valuation that you haven’t glossed over yourself. Here you can find more information about the discounted cash flow method.

Net asset value method: Total assets as lower limit of goodwill

The net asset value is obtained by first adding the values for fixed and current assets at market prices. These include balance sheet items of a tangible and intangible nature. Taxes, debts and liabilities are deducted. Hidden reserves are released. Thus, what is objectively available is evaluated. However, a buyer is usually not only interested in the substance of the company. He would like to know what profit can be generated with this substance in the future. Therefore, this valuation method is only used in combination with other methods. If the selling price is lower than the net asset value, it would make sense for the entrepreneur to simply liquidate the company. Therefore, the net asset value serves as a lower limit for the goodwill. The net asset value method is also used when other methods lead to negative evaluations. You will find a more detailed description of the net asset value method including a calculation example here.

Mix of methods and averaging methods

The individual methods have strengths and weaknesses. It is therefore advisable not to rely on just one method. A mix of different methods, run several times with varying scenarios, gives a feel for the possible range of company value. With the average value methods, a weighted mean value is often taken from the simplified capitalised earnings value and the net asset value. These include, for example, the Berlin method, the Vienna method, the excess profit method and the Swiss or practitioner method.

Valuation standards

Court-established standards have been established for inheritance and family law disputes.

IDW S1 procedure

In Germany, the IDW S1 procedure was developed by the Institut der Wirtschaftsprüfer (IDW). It defines basic concepts on how to apply individual valuation methods. In most cases, the defined principles are applied to the capitalized earnings value method. However, they can also be transferred to other methods. The IDW S1 method differs from the simplified income capitalization approach in many respects and is more complicated to apply. For example, a plan calculation for the next 3 years is required and the discount factor must be calculated individually from several factors.

The AWH method for the valuation of craft enterprises

This procedure was developed by the working group of the value determining advisors in the handicraft. It is based on the capitalised earnings value method. The basic principles are strongly based on the IDW S1 procedure. These are adapted if they are difficult to implement for small and medium-sized craft enterprises.

Calculate the value of a company: Procedure

1) Cleaning up the accounting records: the financial statements of the last 3-5 years are normalized. Extraordinary expenses and income, non-operating expenses, hidden reserves and tax optimizations are eliminated. Entanglements with the private life of the owner are resolved. If necessary, salaries from the owner or other related parties that are not in line with the market are adjusted. The resulting financial figures should reflect as accurately as possible the sustainable earnings position of the company, which is also realistic under new ownership.

2) Create projected numbers for the next 3-5 years (preferably for different scenarios).

3) Evaluation using the various common evaluation methods, taking into account the previous points.

5) Mix of the individual methods for the formation of average values and ranges, also taking into account different scenarios and assumptions.

Calculate company value: Rule of thumb

Pi times thumb formula for a first indication

You don’t want a scientific derivation, but you really only want a very rough indication of the company value of a small or medium-sized company?

  • Rule of thumb 1: Calculate the average EBIT (earnings before interest and taxes) of the last three years. Multiply this by a factor of 4 (low value) to 6 (high value). Subtract debts of the company from the results. You will get a range in which your company value is approximately.
  • Rule of thumb 2: Consider the amount of profits a buyer could take out of the company over the next few years. Set the price so that it can recoup the purchase price within 4 to 7 years.

Online Goodwill Calculator

An online company valuation can provide a good initial indication of a possible selling price. However, a specialist should always be consulted for a definitive price determination.

Characteristics of a good online company evaluation

  • Systematic guidance through a structured questionnaire
  • Understandable for non-experts
  • Can make the most frequent adjustments to the financial figures
  • Based on current market data
  • Takes different industries into account
  • Takes into account different company sizes (a company with 5 employees is valued differently than one with 50 employees)

Of course, we would like to refer you to our own online company evaluationat this point.

Online company ratings are not suitable for initial indication at…

  • … Startups
  • … fast growing companies
  • … Companies with losses or very low profitability

Beware of marketing tricks!

Many online calculators have only one goal: to generate leads for company sales. They suggest that you get an automatic evaluation after the questionnaire. At the end comes the surprise: you have to enter your contact details and a “subject matter expert” (salesperson) will get back to you by phone.

Maximize company value in the short term (“make the bride pretty”)

A number of things can be done before the sale to reduce uncertainty and highlight the strengths of the business. This maximizes sales price.

Distribute knowledge, document processes, define deputies

This can minimize the potential damage if a key employee drops out or leaves the company. This alleviates a major concern of a potential buyer.

Ensure customer and supplier relationships

A buyer will be concerned about losing important customer or supplier relationships after the owner leaves.

  • Transfer important relationships to employees who are likely to stay with the company.
  • If possible, secure customer relationships through service agreements and loyalty programs.
  • Identify alternatives for key suppliers to mitigate risk for default and price increases.

Optimization of receivables management

Reduce capital tied up in current assets. This directly increases the value of the company. Shorter payment terms for customers and a consistent dunning system should be examined.

Prepare annual balance sheets

The annual financial statements of the last 5 years must be prepared in a transparent and easily understandable manner. Fluctuations in sales, slumps in profits, conspicuous jumps in costs, etc. must be able to be explained conclusively when asked. This creates trust and increases planning reliability.

Well-known references document

Get references from reputable and satisfied customers and include them in sales materials.

Convincing formulation of market advantages

What makes the products or services unique in the market? What is hard for the competition to copy? Focus on what’s important and get to the point. Include the formulated benefits in the sales documents.

Create a plausible growth plan

Identify realistic and concrete potentials for further growth and increased efficiency and how these can be realized. Also, be prepared to ask yourself why you haven’t already implemented them yourself.

Anticipate and prepare further information needs of the buyer

The greater the uncertainties and doubts of the buyer, the lower the purchase price. Build trust with well-documented, clear, complete answers to anticipated questions.

Clarify unresolved employee claims

Clarify and document all claims to bonuses, holidays, promised wage increases, etc. Avoid negative surprises for the seller.

secure premises

Increase planning security by securing long-term leases for your premises, renegotiating with the landlord if necessary.

Clarify internal conflicts

Disputes should be resolved and bad moods in the team should be improved. The sales process and the transition phase are demanding and the owner is dependent on the support of the employees.

Prepare the premises

The eye makes a judgment:

  • Cleaning of the premises
  • Carrying out renovations that are due
  • Ensure compliance with legal requirements
  • Sale or disposal of redundant machinery and inventory
  • destocking

Update the company website

Avoid an outdated or unprofessional internet presence.

Valuation of start-ups

Valuing startups is even more subjective than valuing established companies. One evaluates exclusively a promise for the future.

Important terms: pre-money vs post-money valuation

When a startup closes a funding round, money flows into the startup’s bank account. The value of the company thus increases by this amount of money. It is therefore important to be clear in a valuation whether one is talking about a “pre-money” valuation (value before the financing round) or “post-money” valuation (value after the financing round).

Expected return from investors for startups

Startups are risky investments. That is why investors expect a high return. The earlier the financing phase, the greater the risk and thus the expected return. The expected return is needed for the DCF and VC methods.

Financing phaseExpected return / discount rateExpected payback in 5 years
1 Seed Stage (foundation)70-90%20x
2 Start-up Stage (before market launch)50-70%10x
3 First Stage (Successful Market Entry)40-60%8x
4 Second Stage (Expansion)35-50%6x
5 Later Stage (positive cash flow)30-40%5x

Source: Venture Valuation, Lecture_IF-Unternehmensbewertung_2012.pdf, Slide 29

Discounted Cash Flow Method for Startups (DCF)

The DCF method described above can be applied to business plans of startups. The discount rate used is derived from the investors’ expected return (see table above).

Venture Capital Method (VC Method)

This method is simpler than the DCF method. One uses the simple multiplier method. This is really only suitable for established, profitable companies. Because if the company isn’t making a profit yet, there’s nothing to multiply. That’s why the first step is to imagine that everything is going exactly as in the business plan. The multiplier method is then applied to the projected numbers in, e.g., 5 years. This then gives the hoped-for value in 5 years. Whether this scenario will exactly occur is, of course, very uncertain. The future value is therefore extrapolated back to the present using investors’ expected returns (see table above).

Example: A startup (first stage) expects to exit in 5 years. The expected profit in 5 years is 1 million. According to the multiplier method, the company would then be worth 6 million. The investors expect an annual return of 40%. So the value of the company must increase by 40% every year. It must be calculated back with the following calculation: 6.0 m / (1 + 40%) ^ 5 = 1.1 m. The company thus receives a post-money valuation of 1.1 m.

Glossary: Important terms in business valuation


Stands for “discounted cash flow”. The DCF method is a frequently used valuation method.

Derivative goodwill

Derivative goodwill is the difference between the actual purchase price of a company and its intrinsic value. The value is reflected in the accounts of a company that has bought another company. It corresponds to “goodwill” and “goodwill” from an accounting perspective. If the value is not determined by a purchase price but is estimated, this is referred to as “original goodwill”.

enterprise value

The total value of the firm from the perspective of equity and debt investors. In contrast to the equity value, debt capital is not deducted. The value allows a comparison between companies with different capital structures.

equity value

The value from the equity investor’s perspective. Equity value equals enterprise value minus debt plus cash reserves.

Company value

In practice, this value is often equated with the total value of the company. From an accounting point of view, “goodwill” refers only to the part that exceeds the net asset value (see “net asset value”) in the event of a sale. Synonymous with “goodwill” and “derivative goodwill”.


See “Derivative goodwill”.

Intangible assets

Intangible assets are assets that are listed on a company’s balance sheet but are not physical, tangible assets. These include, for example, patents, trademarks and licenses. The total constitutes the intangible value of the company.

Material value

Physically tangible assets such as machinery and inventory.

Original goodwill

The original goodwill is the difference between the self-assessed total goodwill and the net asset value. It cannot be reflected in accounting. In contrast to derivative goodwill, the value is not derived from an actual sales price but is estimated. It may therefore not be included in the balance sheet.

Pre Money Valuation

Refers to the value of a start up before raising an additional round of funding.

Post Money Valuation

Refers to the value of a start up after new money has been infused into the company.

Substance value

See net asset value method.