Calculating the value of a company goes far beyond a simple intuitive figure. It's a strategic, rigorous and meticulous process. This article details the different methods and calculations used to value a company, the situations in which each is most applicable, and XVAL 's pragmatic approach to ensuring reliability and clarity.
1. Main methods for calculating a company valuation
a. Asset valuation method
It consists in enhancing the value of the company's assets:
Valeur = Actifs (juste valeur) – PassifsThe patrimonial method: a basis of security for certain companies
The patrimonial method is based on the valuation of a company's balance sheet assets and liabilities. Also known asadjusted net book value, the idea is to revalue accounting items at their fair market value. This method is particularly well-suited to highly capitalized companies, such as real estate, industrial or agricultural companies, or asset holding companies. It can also be used as a minimum basis in the event of a potential liquidation or conflict between partners.
Necessary upgrades: real estate, goodwill, securities, etc.
The main challenge is to correct book values, which are often far removed from economic reality. Common examples include
- Real estate on the balance sheet: often depreciated for several years, even though it has increased in value. A property purchased for €300,000 can be worth €600,000 on the market, potentially doubling the value of your assets.
- Goodwill: this may be recorded at little or no residual value. However, in certain sectors (restaurants, local services), the value of goodwill is a significant asset.
- Equity interests or strategic receivables: their value depends on a separate valuation of the subsidiaries or partners held.
- Old inventories, doubtful customers, provisions to be discounted: current assets and liabilities also need to be adjusted.
At XVAL, we systematically remove these elements with independent experts to provide a corrected, defensible and documented net asset value.
Limits: a fixed vision that ignores profitability and potential
The major drawback of this method is that it completely ignores the company's profitability and development potential. A company with substantial real estate assets but a loss-making business may appear to be highly valued... even though it is economically fragile. Conversely, a digital company with few assets but a scalable business model will be undervalued. This is also an untapped method in start-ups, consultancies and software companies, where value is above all intangible.
Conclusion: the patrimonial method is useful, sometimes essential, but never sufficient on its own. It must be combined with performance or flow-based approaches to reflect true economic value.
b. Valuation method: multiples
It is based on the application of a multiple to a key financial indicator - EBITDA, net income, sales, depending on the nature of the business.
- EBITDA: the most common method for SMEs, with sector multiples between 4× and 7× depending on size and stability.
- Sales (CA): used for fast-growing or unprofitable companies, with multiples of up to 8× in tech start-ups.
The keys to applying it correctly: restatements and reliable comparables
The reliability of this method rests entirely on two pillars:
- Quality comparables: they must be recent, in the same sector, of similar size, with similar economic conditions. XVAL has access to databases based on actual transactions involving several thousand files per year.
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A restated aggregate EBITDA, for example, must be adjusted for non-recurring items such as :
- excessive or undervalued executive compensation,
- below-market rents (particularly if the premises are owned by associates),
- unrecorded benefits in kind,
- exceptional expenses or non-permanent income.
Example: a company declares an EBITDA of €200,000, but pays a very low salary to the manager (€30,000). If the market salary would be €70,000, the restated EBITDA becomes €160,000. At a multiple of 5×, the difference in value reaches €200,000, whether restated or not. Find out more about EBITDA restatements: explanatory video
At XVAL, all aggregates are restated and justified to guarantee economically reliable valuation. (Find out more aboutEBITDA restatementsfor enterprise valuation calculations)
Limits: an attractive but sometimes misleading method
The main pitfall is oversimplification. Applying a market multiple without analyzing the company's actual profile can lead to serious valuation errors. Two companies in the same sector, with equivalent sales figures, may have radically different margins, expenses, WCR or outlook.
Another common pitfall is the use of sales as the basis, without taking profitability into account. This can artificially inflate value in low-margin businesses (catering, distribution), or underestimate it in high-margin but low-sales models (SaaS, consulting).
Finally, in volatile or post-crisis market environments, multiples can quickly become distorted. Each piece of data needs to be contextualized.
Conclusion: The multiples method is fast, meaningful and widely used... provided it is handled rigorously, with accounting restatements and solid comparables. XVAL has mastered this approach thanks to its transaction databases, its ability to restate data, and to cross-check methods to validate the consistency of results.
c. Valuation method: DCF - Discounted cash flows
The DCF method estimates value by discounting future cash flows:
VE = Σ (FCF_t / (1 + k)^t) + Valeur terminale actualisée
- FCF: free cash flow after tax, changes in WCR, investments
- k: discount rate (risk + cost of capital)
- Terminal value: calculated using a multiple or a perpetual growth formula
DCF method: a fine-tuned, forward-looking approach
The DCF (Discounted Cash Flow) method is based on a simple and powerful logic: a company is worth the sum of the future cash flows it will generate, discounted at a rate reflecting its level of risk.
It is particularly relevant for valuing :
- growth companies,
- businesses with good medium-term visibility,
- or groups where leverage and cash management are strategic.
This method is also popular with investors and investment funds, as it enables them to project scenarios based on customized economic assumptions.
Validity conditions: projections, rates, terminal value
A sound DCF calculation is based on several technical elements that must be consistent, justified and well modelled:
- Free Cash Flows: derived from EBITDA, adjusted for capital expenditure (CAPEX), change in WCR, and taxes.
- Projection period: generally 5 to 7 years. Too short = imprecise, too long = speculative.
- Discount rate (WACC): weighting of the cost of equity and debt. The riskier the company, the higher the rate (between 8% and 15% on average for SMEs).
- Terminal value: often representing 50% to 70% of the final valuation, it can be calculated by perpetual growth (Gordon-Shapiro) or by applying a terminal multiple.
Example:
An SME generates a forecast Free Cash Flow of €150,000 per year for 5 years, with growth of 3% and a WACC of 10%. The present value of the flows is €570,000, and the terminal present value €730,000.
Final valuation = €1.3 M
At XVAL, we build these DCF models with rigor, integrating sector data, financial benchmarks, and realities on the ground (personnel costs, customer turnover, recurring CAPEX, etc.).
Limitations: sensitive model dependent on assumptions
The main weakness of DCF is its extreme sensitivity to the assumptions chosen. A simple 1-point difference in WACC or growth rate can vary the valuation by several hundred thousand euros, or even more. Similarly, an overestimation of cash flows (due to excessive optimism or ignorance of the economic cycle) can generate a value that is largely disconnected from the market.
Another common pitfall is to apply a DCF without sector consistency. In unstable or cyclical sectors (catering, events, transport), the projection quickly becomes speculative.
Finally, many people neglect to model changes in working capital, which is crucial in businesses with high seasonal fluctuations or cash flow requirements (e.g. trading, textiles, distribution).
At XVAL, DCF is never used on its own. It is always combined with multiples and asset valuation methods, to ensure a coherent, credible valuation range.
d. Combined method for calculating a company valuation (mixed)
It aims to cross-fertilize approaches (asset management, multiple approaches, DCF) to smooth out the margins of error, especially in complex contexts (e.g. family business, mature industry, uncertain growth).
The combined method, or multi-criteria approach, consists in not relying on a single valuation method, but in weighting several complementary approaches: asset valuation, multiples, DCF, or even comparable market values. Each method acts as a mutual validation filter.
This practice is particularly useful in the following cases:
- Valuation in sensitive situations (disputes between partners, divorce, tax disputes, etc.),
- Balance between a company with a solid heritage but unstable recent performance,
- Business with a high proportion of intangible assets not recorded on the balance sheet.
Example of a typical XVAL weighting for an SME :
- Adjusted EBITDA multiples: 50%.
- DCF (discounted cash flow): 30%.
- Heritage method: 20
These weightings may vary according to the sector, the quality of available data and the stability of future cash flows. The aim: to reduce the biases inherent in each method, while offering a defensible, well-argued valuation that is adapted to the issues at stake.
2. Synthetic comparison
| Calculation method (company valuation) | Benefits | Limits |
|---|---|---|
| Patrimoniale | Simple, secure, understandable for everyone | Does not capture profitability or future |
| Multiple | Fast, firmly rooted in the market | Sensitive to the choice of multiple and aggregate used |
| DCF | Precise, forward-looking | Complex and dependent on assumptions |
| Combined | More robust and balanced | Technical requirements and modeling |
3. Sector background and practical guidance
The ideal method depends on the sector, maturity, business model and growth profile:
- Stable industry: EBITDA multiples + asset-based approach
- Start-up / SAAS: DCF or multiple sales, depending on visibility
- Asset-based company: value of assets plus valuation of complementary flows
Economic conditions (interest rates, investor confidence, M&A momentum) also influence multiples; in France, the average EBITDA multiple for SMEs is 5.3× in 2023, with notable stability despite uncertainties.
4. Added value of the XVAL approach
We apply a tailor-made and rigorous 5-step methodology:
- Personalized diagnosis: understanding the model, margins, risks, strengths
- Financial restatements: adjustment of EBITDA, restatement of rents, inventories, etc.
- Application of multiple methods, depending on suitability - EBITDA, sales, DCF, asset management
- Cross-checking via DCF, comparables, and validation of assumptions
- Readable, well-argued report: full transparency, scenarios, value thresholds, net debt, liquidity
This guarantees a solid valuation, defensible in the eyes of investors, lawyers and auditors.
Request to be recontacted by a XVAL valuation consultant:
5. XVAL case studies - how to calculate a company's valuation?
a. Asset-based business: be careful not to ignore profitability
Let's take the case of a family-run garage, with its own premises and estimated net book value of €450,000. On paper, the value might seem to correspond to this amount. However, if the garage generates EBITDA of €120,000 with stable profitability, the real economic value is much higher. At a multiple of 4.5×, the value rises to €540,000, without even taking into account the value of the land.
➡️ Pitfall to avoid: undervaluing the business by relying solely on book assets without valuing the operation.
b. The fast-growing start-up: sales alone are not enough
Let's imagine a young SaaS company with sales of €1 million, but still making a loss. Applying a sales multiple (3×, for example) could value it at €3 million, but this assumes strong, sustainable growth. However, if customer acquisition costs soar and churn is high, future profitability is uncertain.
➡️ Appropriate method: DCF projection with optimistic and cautious scenarios.
➡️ Pitfall to avoid: using an over-optimistic sales multiple without a validated business model.
c. Traditional retailing: profitability takes precedence over volume
Two local businesses each generate sales of €800,000. The first has well-controlled purchases, moderate rents and EBITDA of €150,000. The second, in a more premium location but with high charges, has a EBITDA of just €40,000.
With a multiple of 4.5×, the first is valued at €675,000, while the second is valued at no more than €180,000, despite identical sales.
➡️ Pitfall to avoid: confusing sales with real performance. Fixed costs kill profitability and distort comparisons.
d. The industrial company: accounting adjustments are crucial
An industrial SME generates €500,000 in EBITDA... but pays an undervalued rent because it owns its premises. It also employs the manager at a very low salary. Without reprocessing these elements (market rent, manager's remuneration, reclassified leases), the valuation would be biased upwards.
➡️ XVAL method: complete reprocessing of expenses and valuation based on adjusted EBITDA.
➡️ Pitfall to avoid: not reprocessing "abnormal" or unbalanced expenses.
e. The B2B service company: intangible assets to value
A consultancy agency generates sales of €1.5 million and EBITDA of €250,000. It has virtually no balance sheet assets, but a very stable team, a loyal customer base and specific know-how.
➡️ The asset approach would give a value close to zero. However, on a multiple of 5× EBITDA, the real economic valuation is around €1.25 million.
➡️ Pitfall to avoid: relying on fixed assets when all the value is human.
f. Summary: every method has its blind spots
- The patrimonial method is misleading for service activities.
- Sales multiples are dangerous without margin or profitability projections.
- DCF is a very powerful tool, but requires solid assumptions (growth, margin, rates).
- The restated EBITDA multiple is often the most balanced method for SMEs, provided that the accounting restatements are rigorously applied.
XVAL selects the right method for each company, depending on its specific features and the valuation context (sale, partner exit, litigation, transfer, etc.). Thanks to our sector-based approach, we avoid classic pitfalls and deliver documented, robust and defensible valuations(Example of a company valuation report).
Conclusion on calculating a company valuation
Calculating a company's valuation is a subtle combination of methods, financial data and strategic projections. The key: choosing the right approach to reflect economic reality, growth potential and balance sheet structure.
With XVAL, it's a technical, contextualized and transparent valuation, to secure any transaction or arbitrage.
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