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The majority of company valuations today are based on multiples of revenues or EBITDA.Using the following...

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Accounting

The majority of company valuations today are based on multiplesof revenues or EBITDA.Using the following data please state thecompany valuation for each of the scenarios below.[SaaS Revenue 4xmultiple: Tech Enabled Service Revenue 1.5x multiple: MaintenanceRevenue 2x multiple: Traditional Service Revenue 1x multiple:Positive EBITDA 15x multiple.]

  1. Company A has a mix of Tech Enabled and Traditional Service.TheTech Enabled Services total $4,000,000.00 annually and theTraditional Service totals $1,500,000.00.
  2. If the same company in “1” above had annual EBITDA of$750,000.00, which would be the better valuation?
  3. Company B has high growth SaaS revenue of $10,000,000.00 andMaintenance Revenue of $4,500,000.00.It also has annual operatingEBITDA of -$350,000.00.Based on these facts would an offer of$31,000,000.00 for the company be acceptable?Please explain youranswer.
  4. Company C is a pure Traditional Services company with$3,500,000.00 in annual revenue but $1,000,000.00 in EBITDA.Basedon this should the owner accept a lower than standard 10x EBITDAmultiple or $10,000,000.00?Please explain your answer.

Answer & Explanation Solved by verified expert
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Answer :

Company A
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
Tech Enabled $40,00,000 1.5 $60,00,000
Traditional $15,00,000 1 $15,00,000
$75,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$7,50,000 15 $1,12,50,000
Thus, Valuation by EBITDA Multiple is better.
Company B
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
SAAS $1,00,00,000 4 $4,00,00,000
Maintenance $45,00,000 2 $90,00,000
$4,90,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$3,50,000 15 $52,50,000
Thus, offer of $31000000 won't be acceptable as it has better valuation of $49000000.
Company C
Valuation using Revenue Multiple:
Service Revenue Multiple Valuation
Traditional $35,00,000 1 $35,00,000
$35,00,000
Valuation using EBITDA Multiple:
EBITDA Multiple Valuation
$10,00,000 15 $1,50,00,000
Thus, the owner should not accept $10000000 as it has better valuation of $15000000.

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The majority of company valuations today are based on multiplesof revenues or EBITDA.Using the following data please state thecompany valuation for each of the scenarios below.[SaaS Revenue 4xmultiple: Tech Enabled Service Revenue 1.5x multiple: MaintenanceRevenue 2x multiple: Traditional Service Revenue 1x multiple:Positive EBITDA 15x multiple.]Company A has a mix of Tech Enabled and Traditional Service.TheTech Enabled Services total $4,000,000.00 annually and theTraditional Service totals $1,500,000.00.If the same company in “1” above had annual EBITDA of$750,000.00, which would be the better valuation?Company B has high growth SaaS revenue of $10,000,000.00 andMaintenance Revenue of $4,500,000.00.It also has annual operatingEBITDA of -$350,000.00.Based on these facts would an offer of$31,000,000.00 for the company be acceptable?Please explain youranswer.Company C is a pure Traditional Services company with$3,500,000.00 in annual revenue but $1,000,000.00 in EBITDA.Basedon this should the owner accept a lower than standard 10x EBITDAmultiple or $10,000,000.00?Please explain your answer.

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