Business Valuation Formula

The Core Fundamentals

Understanding how to value a business is crucial for entrepreneurs, investors, and finance professionals alike. If you’ve ever asked, “What exactly is the business valuation formula?” you’re in the right place. Whether you’re in Mumbai, Bengaluru, or anywhere across India, mastering company value calculation techniques is vital for making sound financial decisions and maximizing business growth.

What Is a Business Valuation Formula?

A business valuation formula is a mathematical method or set of methods used to estimate the economic worth of a company. Different formulas exist, each suited to variables such as industry, company size, and the purpose of valuation.

Why Is It Important?

• Informs Investment Decisions: Accurately valuing a business helps investors assess risk and potential return.

• Guides M&A Activity: Ensures fair pricing during mergers, acquisitions, or partnerships.

• Assists Regulatory Filings and Taxation: Valuations are required under Indian laws such as the Companies Act, 2013 and Income Tax Act, 1961.

Core Business Valuation Methods (India & Global)

India’s valuation landscape operates under global best practices often tailored to regulatory standards. Here are the most widely used formulas for company value calculation:

1. Asset-Based Valuation (Net Asset Value/NAV)

This formula sums up the fair market value of a company’s assets and subtracts its liabilities.

• Formula:

  NAV = Assets − Liabilities

Used For: Manufacturing, real estate, or businesses with substantial tangible assets.

2. Income-Based Valuation

Discounted Cash Flow (DCF)

The gold standard in valuations, DCF projects future cash flows and discounts them back to their present value using the company’s cost of capital.

• Formula:

  

  
  

Where:

• CF_n= Cash flow in year n

• r = Discount rate (often WACC — Weighted Average Cost of Capital)

Used For: Tech startups, growth companies, or businesses expecting significant future profits.

3. Market-Based Valuation

Price/Earnings (P/E) Ratio

Used for listed companies, compares market price to earnings.

• Formula:

  P/E = Market Price per Share

  Earnings per Share

  
  

• Company Value Calculation:

  Valuation = Net Profit × P/E Ratio

Price/Sales (P/S) Ratio

• Formula:

  P/S = Market Price

  Total Sales

Comparable Company Analysis (CCA)

Compares your business to recently sold similar companies.

4. Revenue Multiple

Multiply annual revenue by an “industry multiple,” which reflects market expectations for similar companies.

• Formula:

  Valuation = Annual Revenue × Industry Multiple

Example:If annual revenue is ₹50 lakh and your industry multiple is 3,Valuation = ₹50,00,000 × 3 = ₹1,50,00,000.

Key Multiples by Sector (India):

• Tech Startup: 5x–10x

• Retail Store: 0.5x–2x

• Restaurant: 1x–3x

5. Enterprise Value (EV)

Reflects the total value of a company, showing the theoretical price a buyer would pay.

• Formula:

  EV=Market Cap+Debt−Cash

Used For: Large companies with complex capital structures.

Step-by-Step Guide: How to Value a Company in 2025

1. Choose Your Method: Decide is it asset-based, income-based, or market-based?

2. Gather Data: Financial statements, asset records, industry multiples.

3. Apply Formula: Use the formula that fits your company’s profile.

4. Benchmark: Compare with industry peers. Adjust multiples based on growth, profitability, and market conditions.

5. Consult Indian Regulations: For compliance, especially during mergers or share sales, refer to guidelines under the Companies Act, SEBI regulations, or RBI for cross-border deals.

Common Business Valuation Formulas in India

Method	Formula	Best For
Asset-Based (NAV)	Assets - Liabilities	Tangible asset-heavy companies
DCF	Sum of discounted future cash flows	High-growth businesses
P/E Ratio	Market price / Earnings per share	Profitable listed companies
Revenue Multiple	Annual revenue × industry multiple	Small businesses, startups
Enterprise Value	Market cap + Debt - Cash	Companies with complex finance

Business Valuation Best Practices

• Always adjust for industry-specific factors.

• Regularly update calculations to reflect current market data.

• Comply with Indian regulatory requirements, especially for official filings or transactions.

• Leverage valuation calculators and financial modeling tools for accuracy.

• Get a registered valuer when required by Indian law.

Using Valuation Formula India: Real-World Example

Suppose your manufacturing business has:

• Net profits: ₹1.2 crore

• Industry P/E Ratio: 8

Valuation = ₹1.2 crore × 8 = ₹9.6 crore.

Or, for a tech startup:

• Annual revenue: ₹10 lakh

• Industry Multiple: 5

Valuation = ₹10 lakh × 5 = ₹50 lakh

Conclusion

In today’s competitive market, partnering with Dugain Advisors empowers you to achieve precise business valuations using proven formulas and contemporary best practices. Our expertise ensures compliance with Indian regulations and offers tailored insights for effective decision-making. Whether for mergers, acquisitions, or growth planning, Dugain Advisors provides the clarity and confidence needed to realize your company’s true value. Connect with our experts to streamline and strengthen your valuation process.