🐺The Top 1% Know Before They Even Start...

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The smartest investors know a company’s value before investing.

But how do you determine a company’s value?

Here are 7 ways:

1/ Market Capitalization

This is a simple and widely understood way to calculate a company’s value.

You multiply its current share price by the total number of outstanding shares.

This formula is commonly used for quick comparisons between public companies.

2/ Comparable Transactions

This involves analyzing the mergers & acquisition prices paid for similar companies.

Private equity investors typically determine a company’s value this way.

This strategy works because it determines market value based on actual deals.

3/ Comparable Company Analysis

Another method is comparing a company’s financial metrics to similar companies to find value.

This approach offers context within an industry to make better investment decisions.

It’s useful for public and privately owned companies.

4/ Book Value

In this approach, we’re simply looking at the company balance sheet.

The formula is assets - liabilities = book value

This gives you a rough valuation at a quick glance.

5/ 409A Valuation

This strategy determines the fair market value of a private company’s common stock.

It’s important because it helps private companies issue stocks lawfully.

It’s also great for angel investors looking at startups.

6/ EBITDA Multiplier

An EBITDA multiplier is a valuation that focuses on operational profitability.

The formula is EBITDA x industry multiplier = value

It’s utilized in industries where EBITDA is a highly valued metric.

7/ Revenue Based Valuation

Revenue-based valuations apply a multiplier to a company’s recurring revenue.

The formula is revenue x revenue multiplier = value

It’s a popular valuation strategy for companies with subscription models.

Determining a company’s value isn’t the be-all-end-all of investing.

But it’s critical in deciding if a company is a worthwhile investment.

Bookmark this thread and pull it up when you’re shopping for new investments.

It might save you from buyer's remorse in the long run.

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