Finding the current total market value—the market capitalization—of a publicly traded company is straightforward. But several methods can also estimate market values of private companies to aid in investment or acquisition assessments. Use the approaches below to derive market value based on your needs and data available.
Use the market cap formula for public companies. Simply multiply total number of company's outstanding shares by the current market-trading share price to determine market capitalization. For example:
Shares Outstanding: 25 million
Current Share Price: $15
Market Capitalization = 25 million x $15 = $375 million
Apply revenue multiples from comparables for private companies. If the company has established revenue streams, identify 3-4 comparable public companies in the same domain. Sum their market caps, then divide by their total revenues to yield an average "revenue multiple”. Finally, multiply private company revenue by this industry multiple.
Say 3 competitors have these market caps and revenues:
Comp 1: $500M market cap, $100M revenue
Comp 2: $300M market cap, $75M revenue
Comp 3: $400M market cap, $80M revenue
Average Revenue Multiple = (500M+300M+400M)/(100M+75M+80M) = 3x
If private company has $60M revenue, Estimated Market Value = 3 x $60M = $180M
Use EBITDA multiples for asset-heavy businesses. Rather than revenue, business valuations here focus on EBITDA which accounts for operating profitability. Apply the same peers approach above, but for EBITDA instead of revenue.
Consider discounted cash flow (DCF) models for highest accuracy. Project all future cash flows based on several modeled growth and cost scenarios. Then, discount these future cash flows back to the present to determine fair value. Complex, but factors in projected performance over time.
These market value modeling approaches help provide valuation ranges when Limited public filings exist. Assess models against actual acquisition offer data points when available to gauge accuracy and refine multiples.
Be aware certain industries have specialized models that capture unique facets like users, subscriptions, units sold etc. Work with financial advisors if unfamiliar with industry-specific valuation methods.
In the end, market value reflects perceived current and expected future profit generation ability. Rigorous modeling combined with any real-life indicator data gives the best valuation estimate.
Use the market cap formula for public companies. Simply multiply total number of company's outstanding shares by the current market-trading share price to determine market capitalization. For example:
Shares Outstanding: 25 million
Current Share Price: $15
Market Capitalization = 25 million x $15 = $375 million
Apply revenue multiples from comparables for private companies. If the company has established revenue streams, identify 3-4 comparable public companies in the same domain. Sum their market caps, then divide by their total revenues to yield an average "revenue multiple”. Finally, multiply private company revenue by this industry multiple.
Say 3 competitors have these market caps and revenues:
Comp 1: $500M market cap, $100M revenue
Comp 2: $300M market cap, $75M revenue
Comp 3: $400M market cap, $80M revenue
Average Revenue Multiple = (500M+300M+400M)/(100M+75M+80M) = 3x
If private company has $60M revenue, Estimated Market Value = 3 x $60M = $180M
Use EBITDA multiples for asset-heavy businesses. Rather than revenue, business valuations here focus on EBITDA which accounts for operating profitability. Apply the same peers approach above, but for EBITDA instead of revenue.
Consider discounted cash flow (DCF) models for highest accuracy. Project all future cash flows based on several modeled growth and cost scenarios. Then, discount these future cash flows back to the present to determine fair value. Complex, but factors in projected performance over time.
These market value modeling approaches help provide valuation ranges when Limited public filings exist. Assess models against actual acquisition offer data points when available to gauge accuracy and refine multiples.
Be aware certain industries have specialized models that capture unique facets like users, subscriptions, units sold etc. Work with financial advisors if unfamiliar with industry-specific valuation methods.
In the end, market value reflects perceived current and expected future profit generation ability. Rigorous modeling combined with any real-life indicator data gives the best valuation estimate.
