How much profit should a company be making before we can realistically value it at X amount of money?


2

I'm looking for a real world calculation for how much profit or projected profit we should expect a company to be making before we apply a valuation of X amount of money.

What is a realistic calculation? (i.e. Not a "Facebook" calculation!)

Thanks

Valuation

asked Apr 2 '11 at 20:24
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Bomb Defused
227 points

1 Answer


3

You don't need to be making a profit to evaluate a company. Most startups get evaluated way before they make a profit.
Typically, people use some general rules to gage a companies worth. These include:

  • 10x Money In: Usually, an investor wants at least 10 their money as a return
  • 3-5x Revenue: This can be discounted revenue over time as well.
  • 7x Profit: The profit one is a little tricker since profit can be increased at the expense of growth.

All of these models are for growth companies. A main line, brick and mortar type, where the market is mature or predictable, will have a vastly different model.

answered Apr 3 '11 at 03:01
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Jarie Bolander
11,421 points
  • Thanks, that sounds about right. Obviously not an exact science! – Bomb Defused 8 years ago
  • Not a all. The best thing to also do is compare to comparable companies just to see how close you are. – Jarie Bolander 8 years ago

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