As an entrepreneur, you must know the value of your business, apart from learning how to register a company in Singapore. As we all know, investors are always looking into how they will price their investments in a company. Business owners should prioritize the valuation of business in Singapore so they can always look at the bigger picture of their operations. Here are some of the methodologies you can use.
Revenue Multiple
Given that revenue figures are difficult to manipulate, revenue multiple is the most popular way of valuation in the business community. The usual basis for valuation is a multiple of 2x. But if the business has an accelerated growth and is involved in technology, the revenue multiple could be as high as 3x.
While using this method is simple, it may not be applicable in all companies and industries. Business can earn the same revenues but have very different operation sizes, which is another aspect to be considered.
Still, revenue multiple is the alternative when a company registers negative EBITDA or earnings before interest, tax, depreciation, and amortization. With negative value, the EBITDA multiple is deemed irrelevant.
It is best to note that startups, especially in the e-commerce business, are closing their books in the red during the early years. It takes a little more time before they have the return on their investments.
EBITDA Multiple
If your company registered a positive EBITDA at the end of the reporting period, this method might be the right choice for your company valuation. EBITDA refers to the profits before the company deducted interest, tax, depreciation, and amortization. It shows the profitability of the company, indicating its financial position.
The usual EBITDA multiple is 10. Business analysts and investors see this figure as a healthy indication. It can range from 6 times to 15 times.
Price-to-earnings Multiple
Price-to-earnings multiple is commonly known as the price multiple. This business valuation process factors in the current market price per share of the company and divides it to the earnings per share. In simple terms, this value translates the amount of money the investors are willing to pay for the shares.
A high price-to-earnings ratio usually means that the investors are anticipating a robust business growth in the future. Average ratio is around 20 to 25 times. It ranges from 12 times to 30 times.
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