I’ve performed a Valuation analysis, though don’t understand all of the methods used; where could I learn more about these various measures and methods of Valuation used within IndustriusCFO?

Below, you will find information as it pertains to IndustriusCFO’s Valuation analyses and its underlying theory and methodology.


  1. Book Value - the simplest, what we have "on the books" which simply is the difference between Assets and Liabilities (or Net Worth). 
  1. Earnings Capitalized - takes the potential buyer's expectation of the return on investment and assumes that the business will continue to have the same profitability indefinitely in the future, taking Net Profit After Tax and dividing by the rate of return. 
  1. Capitalization of Current Earnings - same idea as above, using the same rate of expected return, but also adding an assumption that, rather than staying constant, profitability will be growing in the future at the rate specified, which, of course, increases the value so same formula here, only subtracting the growth rate from the return rate in the denominator (making it smaller and the whole thing larger). 
  1. Industry P/E Ratio – few notes:
  • It's not based on actual transactions data, which we didn't have at our possession at the time of developing this module.
  • Instead, it takes a different perspective at the industry growth data on which this analysis is based, that is the same numbers displayed for the industry in the preceding method.
  • The relationship between growth and P/E ratios is commonly used by investors and is well described here http://www.moneychimp.com/articles/valuation/pe_ratio.htm(generally, growing companies are understandably valued more, or have higher P/E ratios)
    • this reference also has a formula within its calculator that is similar to ours, except we make certain assumptions including:
    • future industry growth is the same as the it has shown in the last 3 years (also, justifiable and commonly assumed)
    • average rate that a private investor expects is 25% (based on actual research)
    • accordingly, our formula is P/E = 1/(25%-Growth Rate%), where
    • for the median P/E we use the median industry growth rate
    • for the top quartile P/E - top quartile growth rate
  • we do cap the growth rate at 20%, resulting at the maximum P/E that we display (most often at the top quartile) of 20 
  1. Operating Income Multiple- a common technique, using a rule-of-thumb multiple, usually ranging from 3 to 5
  2. Final Estimate- constructed using all of the techniques, in a weighted average formula.
  3. Excess Value Compared to Same Size Average Firm - all of the relevant industry median values get plugged into the same formula and the difference with 6 is taken.
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