There is no single formula for what a business is worth, but there are three methods buyers use, and understanding all three helps you read any offer you are given.
1. Earnings multiple
The most common approach for a profitable operating business: take a normalised earnings figure (SDE or EBITDA) and multiply it by a market multiple. Simple, fast, and the method most small and mid-market manufacturing deals actually close on.
2. Discounted cash flow (DCF)
DCF projects the future cash the business will generate and discounts it back to today's value. It is more rigorous and more sensitive to assumptions — a favourite of larger or financial buyers, but only as reliable as the forecast behind it.
3. Asset-based
This values the business as the sum of its assets — equipment, inventory, property — less liabilities. It tends to set a floor rather than a market price, and matters most when a business is asset-heavy or its earnings are weak.
Which one applies
| Method | Best for | Watch out for |
|---|---|---|
| Earnings multiple | Profitable operating businesses | Which earnings figure and multiple |
| DCF | Larger or growth businesses | Forecasts can be optimistic |
| Asset-based | Asset-heavy or low-profit businesses | Often understates a going concern |
For most healthy manufacturing businesses the earnings-multiple method drives the headline price, with the asset position acting as a sanity check. A serious buyer will usually triangulate across more than one.