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.
Multiple Discretionary Income Formula
The multiple discretionary income formula is a formula used to value a small business worth less than $2,000,000. It takes the discretionary income on average for the past three years and multiplies it by a risk factor from zero to three based on 10 differently weighted risk elements.
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’.
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.