australianinvestor
Bronze Contributor
I just responded to an interesting thread (http://thefastlanetomillions.com/showthread.php?p=28476) in which business valuation was discussed.
I thought it might be worthwhile to give you a simple case where a business is for sale, to see if you'd buy it, and what price you'd pay.
The (fake) case
A widget company based in Somewhereville, USA.
EDIT - This is a completely passive business. You are evaluating a going concern, which doesn't require any (mandatory) presence of yours.
The question
1. How much would you pay for this business? Providing this business performed exactly as I described above, every month for the next 25 years, how much would you pay?
I want you to write a number. Just analyse what it would be worth under these conditions.
2. How did you come up with this number?
3. What are the key things you want to know before you'd invest?
I'm looking forward to this, I like working this stuff out. Hopefully you do too!
Daniel.
I thought it might be worthwhile to give you a simple case where a business is for sale, to see if you'd buy it, and what price you'd pay.
The (fake) case
A widget company based in Somewhereville, USA.
- Income: $20,000 per month from widget sales.
- Expenses: $8,000 per month (salaries, insurance, lease)
- Gross profit: $12,000.
EDIT - This is a completely passive business. You are evaluating a going concern, which doesn't require any (mandatory) presence of yours.
The question
1. How much would you pay for this business? Providing this business performed exactly as I described above, every month for the next 25 years, how much would you pay?
I want you to write a number. Just analyse what it would be worth under these conditions.
2. How did you come up with this number?
3. What are the key things you want to know before you'd invest?
I'm looking forward to this, I like working this stuff out. Hopefully you do too!
Daniel.
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