Valuation: How to Calculate How Much Your Company Is Worth

"My business is worth a million reais." It is common for entrepreneurs to place extremely high prices on their startups based purely on emotional attachment to years of dedication. However, in the financial market, investors buy cash flow and risk mitigation. The process of discovering a company's fair price is called Valuation.

There are several calculation methodologies, but two dominate the market.

1. Valuation by Multiples (The Quick One)

It consists of observing at what price companies similar to yours are being sold on the market and applying the same "multiple" to your revenue or EBITDA (Operating profit before taxes, interest, depreciation and amortization).

If the bakery market usually sells for "5 times EBITDA", and your bakery has an annual EBITDA of $ 200 mil, um valuation preliminar seria $ 1 Million. It is a simple method, but it fails to ignore future growth rates and the specific debt level of your operation.

2. Discounted Cash Flow (The Scientific)

Discounted Cash Flow (DCF) is the official method for large mergers. It projects all the free cash flow (money left over) that your company will generate over the next 5 to 10 years. It then "brings" this money from the future to present value through a "Discount Rate" (WACC), which represents the business risk and the country's basic interest rate. If interest rates are high, money in the future is worth less today, so its valuation drops.

The Illiquidity Discount

If your company has small revenues and is not traded on the stock exchange, it is "illiquid" (it is difficult to sell). Institutional investors apply a discount of 20% to 30% on the mathematical valuation just because of this liquidity risk.

If you're going to meetings with angel investors or are just strategically curious, use Valuation Calculator to test mathematical assumptions without having to create complex Excel spreadsheets.