Times Revenue Method


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).

BREAKING DOWN '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.

  1. Revenue

    The amount of money that a company actually receives during a ...
  2. Liquidation Value

    The total worth of a company's physical assets when it goes out ...
  3. Fiscal Year - FY

    A period that a company or government uses for accounting purposes ...
  4. Income Statement

    A financial statement that measures a company's financial performance ...
  5. Valuation

    The process of determining the current worth of an asset or company. ...
  6. Accountant

    A professional who performs accounting functions such as audits ...
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 Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  5. Professionals

    The Best Financial Modeling Courses for Investment Bankers

    Obtain information, both general and comparative, about the best available financial modeling courses for individuals pursuing a career in investment banking.
  6. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  7. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  8. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  9. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  10. Fundamental Analysis

    Boost Your Portfolio by Adding 3 Turnaround Stocks

    Peter Lynch loves turnarounds. The stocks of these battered companies can offer incredible rewards if bought at the right time.
  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center