Times Revenue Method

AAA

DEFINITION of 'Times Revenue Method'

A valuation method used to determine the maximum value of a company. The times revenue method uses a multiple of current revenues to determine the "ceiling" or maximum value for a particular business. Depending on the industry and the local business and economic environment, the multiple might be one to two times the actual revenues. For example, assume corporation ABC's revenues over the past 12 months were $100,000. Under the times revenue method, one might value the company anywhere between $100,000 (one times revenue) and $200,000 (two times revenue).

INVESTOPEDIA EXPLAINS 'Times Revenue Method'

Small business owners might determine the value of the company to aid in financial planning or in preparation for selling the business. It can be challenging to calculate a particular business' value, particularly if the value is largely determined by potential future revenues. Several models can be used to determine the value, or a range of values, to facilitate business decisions.

The times revenue method is used to determine a range of values for a business. The figure is based on actual revenues over a certain period of time (for example, the previous fiscal year), and a multiplier provides a range that can be used as a starting point for negotiations. The multiplier used might be closer to one if the business is slow growing or doesn't show much growth potential. The multiple used might be higher, however, if the company or industry is poised for growth and expansion.

Small business valuation often involves finding the absolute lowest price someone would pay for the business (the "floor;" often the liquidation value of the business's assets) and then determining a "ceiling," or the maximum that someone might pay (such as a multiple of current revenues). Once the floor and ceiling have been figured, the business owner can determine the value, or what someone may be willing to pay to acquire the business.

RELATED TERMS
  1. Liquidation Value

    The total worth of a company's physical assets when it goes out ...
  2. Revenue

    The amount of money that a company actually receives during a ...
  3. Valuation

    The process of determining the current worth of an asset or company. ...
  4. Income Statement

    A financial statement that measures a company's financial performance ...
  5. Fiscal Year - FY

    A period that a company or government uses for accounting purposes ...
  6. Operating Cost

    Expenses associated with administering a business on a day to ...
RELATED FAQS
  1. How does transfer pricing help business?

    Transfer pricing involves the trade of goods or services between two related companies, and both can come out the winner. ... Read Full Answer >>
  2. Does the tradeoff model or the pecking order play a greater role in capital budgeting?

    The static trade-off theory and the pecking order theory are two financial principles that help a company choose its capital ... Read Full Answer >>
  3. How do I calculate my effective tax rate using Excel?

    Your effective tax rate can be calculated using Microsoft Excel through a few standard functions and an accurate breakdown ... Read Full Answer >>
  4. How important are contingent liabilities in an audit?

    Contingent liabilities, when present, are very important audit items because they normally represent risks that are easily ... Read Full Answer >>
  5. How does quantifying fixed overhead volume variance show whether a company is profitable ...

    Fixed overhead volume cannot definitively prove a company is profitable, but it can be used to provide an excellent indication ... Read Full Answer >>
  6. What are the main factors that drive share prices in the electronics sector?

    The main factors that drive share prices in the electronics sector are the economy, new technology, bookings and earnings. ... Read Full Answer >>
Related Articles
  1. Professionals

    An Introduction To The Chartered Business Valuator Designation

    Business valuation is a fast growing field. Discover how you can take advantage with a CBV designation.
  2. Entrepreneurship

    Valuing Startup Ventures

    Valuing a company is a difficult task, regardless of the size of the business - but these methods can help.
  3. Bonds & Fixed Income

    Equity Valuation In Good Times And Bad

    Learn how to filter out the noise of the market place in order to find a solid way of determing a company's value.
  4. Investing

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.
  5. Entrepreneurship

    8 Fascinating Traits Billionaires Have In Common

    A top-notch education isn't enough to strike it rich. Nothing compares to learning the habits of the world's famous entrepreneurs and industry leaders.
  6. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  7. Economics

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  8. Investing

    What More Volatility Means For Momentum Stocks

    One byproduct of the recent tick higher in bond yields: a meaningful rise in volatility for both stocks and bonds.
  9. Investing

    How To Implement A Smart Beta Investing Strategy

    Smart beta investing is the notion of re-writing investment rules to improve investment outcomes by targeting exposures to intuitive ideas or factors.
  10. Mutual Funds & ETFs

    5 Dividend ETFs with Growth Potential

    A quick look at a few ETFs with substantial growth potential.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center