Marginal Value

Attributes of marginal value and the associated principles and formulas to achieve; the why’s and how’s of generating extreme value utilizing marginal adjustments and measurements to leverage the business value and ultimately the owner’s wealth.

EBITDA – Drawbacks

EBITDA

There are several business financial attributes required for EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to work well as a basis for the multiple of earnings method (the method used with the Market Comparable Valuation Approach); see Fair Market Value  for a better understanding of the three primary business valuation approaches.

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EBITDA – Buyer Beware (Case Study)

EBITDA

This article will illustrate the opposite effect using the same business information.   A buyer of a business should be leery of financial information and look for improper accounting processes.   The goal is to reduce the operational income and ultimately the value of the business.   The goal is to get the business valuation to a realistic number.

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EBITDA

EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.   The value is generally known as operational profit before capital expenditures and tax obligations.

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Fair Market Value

Fair Market Value

Value at the individual level is strictly personal.  But as more buyers for the same item come into play the price of the item begins to stabilize.  If there are hundreds of thousands of buyers, the price reaches a high level of consistency or what is called 'Fair Market Value'.

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Marginal Revenue in Business

Marginal Revenue

The scholarly definition and reality are two different perspectives.  The student is taught that marginal revenue equals the additional dollars generated for an additional single unit of sales.  It is literally taken right down to the micro measurement.  This is simple to understand but in small business, the scope of its meaning and impact are substantial to the bottom line.

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Business and Industry Growth

Business and Industry Growth

The second most weighted factor in the risk multiplier series for the Discretionary Income Multiplier Formula is business and industry growth.  This factor evaluates the overall change in an industry and in particular the business under review over the most recent three years.

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Stability of Historical Earnings

Stability of Historical Earnings

No other element of the Multiply Discretionary Income Formula has as much weighted value as the historical earnings of the company.  Every knowledgeable business entrepreneur, accountant, lawyer, broker, you name them; they look for this information first.  There’s a reason for this.

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Focus Groups – Adding Real Value to Your Business

Focus Groups

I often wonder how a business could get better if it didn't know what being the best meant.  How could a small business entrepreneur determine he was indeed performing at or above the industry standard if there was no information available to say what was the best, average or poor?  There isn't any real performance standard, that is financial standards, for any particular small business operation.

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Calculating the Value of a Business – Discretionary Income Multiplier Formula

Discretionary Income Multiplier Formula

In the world of small business, the sale of a business is dependent on two critical elements.  They are DISCRETIONARY INCOME and the BUSINESS RISK MULTIPLIER.  These two elements are multiplied to create the overall value of the business operation.  In general, no small business operation is worth more than three times the discretionary income.

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The Cost of One Putt

Using a large database, I calculated the average cost of one putt for each professional golfer. In business, this is known as the marginal cost of doing business.

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