Moving Your Company from a Valuation of $10,150,000 to 38,000,000 Using a 12.5 Percent Compounded EBITDA Rate Over Seven Years

Moving Your Company from a Valuation of $10,150,000 to 38,000,000 Using a 12.5 Percent Compounded EBITDA Rate Over Seven Years

Introduction:

Earlier in the week, I showed you the extreme valuation growth that could be obtained for companies that could produce 25% EBITDA growth and a doubling of their multiple. Today, we ratchet down the EBITDA growth rate down to a growth rate of 12.5% which is much more sustainable for the companies we typically work with. Estimating the future value of a company is a complex task that involves a careful evaluation of various factors. In this article, we embark on a hypothetical journey to project the potential value of a company seven years into the future. Key assumptions include the current EBITDA, the EBITDA multiple used for valuation, and the compounded annual growth rate in EBITDA. By examining these assumptions, we aim to estimate the company's potential worth at the conclusion of the specified 7-year period.

Assumptions:

  1. Current EBITDA and EBITDA Multiple: The company's present 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 12.5% 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. If you would like an analysis like your own company like this, please send me an email at [email protected] and we will produce one using your current EBITDA. We can later refine this analysis based on are modeling questionnaires.

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 * 1.125 = $3,262,500
  • Valuation = EBITDA Current Multiple = $3,262,500 times 3.5 = $11,418,750

Year 2:

  • EBITDA = $3,262,500 * 1.125 = $3,669,844
  • Valuation = EBITDA Current Multiple = $3,669,844 times 3.5 = $12,894,906

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

Year 7:

  • EBITDA = $2,900,000 * (1.125)^7 = $5,474,225 (rounded)
  • Valuation = EBITDA Future Multiple = $5,474,225 times 7.1 = $38,827,224 (rounded)If you would like to determine the actual potential growth for your company, please complete the Value Builder Questionnaire and set up a complimentary one-hour meeting to review the results.https://score.valuebuildersystem.com/excelerating-business-growth/brian-kerrigan

https://calendly.com/bkerrigan-adv

Conclusion:

Based on the provided assumptions, the estimated value of the company after 7 years moves from approximately $10,000,000 to approximately $39,000,000. This projection accounts for both the compounded annual growth in EBITDA and the increase in the EBITDA multiple used for valuation. It is important to note that these projections are based on assumptions, and actual outcomes may differ based on real-world circumstances. Regularly reassessing and adjusting these assumptions is crucial for accurate and informed decision-making regarding the future value of the company.

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