How Do You Calculate How Much Money a Business Is Worth?


Quick Answer

To calculate an estimated value of a business, use the future value formula, which combines the yearly sales profit and growth percentage of the company. This estimated value gives you a small indication of how much money the business is capable of making at a constant rate of growth.

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Full Answer

There is no single way to calculate the value of a business. There are various formulas and rules used to estimate how much a business is worth. For example, you can calculate the liquidation value of a business, which is a process of adding together the value of all assets, inventory, equipment and fixtures in the business, while subtracting all loans, payable accounts and lines of credit. While this method does give you an idea of what the current value of the business, it doesn't give an indication of what the business is capable of in future scenarios.

One of the most common and simplest ways to calculate the value of a business is to look at its revenue stream. It is an easy way to calculate the worth of a business, but the revenue stream of a business does not necessarily indicate how profitable the business is now or in the future.

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