How to value a company: DCF, multiples and what buyers actually pay for

bIAnk AI Research · 2026-11-01 · 9 min

A practical guide to valuing a private company: normalised EBITDA, EV/EBITDA multiples, DCF with WACC and terminal value, and the bridge from enterprise value to the price the shareholders receive.

Start with the right earnings figure

Every valuation of a profitable private company starts from EBITDA, but not the EBITDA in the statutory accounts. Buyers price normalised EBITDA: the recurring earnings of the business once one-off items, owner costs above or below market and related-party transactions are removed.

Document every adjustment with evidence. An adjustment a buyer cannot verify in due diligence will be reversed, and at an 8x multiple each euro of EBITDA you lose costs eight euros of price.

Method 1: trading and transaction multiples

The fastest method multiplies normalised EBITDA by the EV/EBITDA multiple of comparable companies or transactions in the same sector. Public-market sector multiples are a useful anchor, but private mid-market companies usually trade at a discount for size, customer concentration and lower liquidity.

When EBITDA is negative or not representative, as in early-stage or high-growth companies, use EV/Sales instead and cross-check it with the VC method: the value at exit discounted at the return an investor requires.

Method 2: discounted cash flow (DCF)

A DCF values the company's own plan. Project five years of free cash flow (EBITDA minus taxes, capex and working-capital investment), add a terminal value and discount everything at the WACC.

The WACC combines the cost of equity and the after-tax cost of debt. For a Spanish SME the cost of equity is built from the 10-year Bund, the sector's beta, the equity risk premium, a Spain country premium and a size premium; the result is usually well above the cost of debt.

The terminal value decides the answer

In most DCFs the terminal value is more than half of the total. With the Gordon formula it depends on long-term growth (typically 1.5%–2.5%, never above nominal GDP); with an exit multiple it depends on the multiple you assume in five years.

Check both against each other: the exit multiple implied by your Gordon value, and the growth rate implied by your exit multiple. If they diverge widely, one of the assumptions is unrealistic.

From enterprise value to the price you receive

Multiples and DCF give enterprise value. The price for the shares is enterprise value minus net financial debt and minorities, plus non-operating assets such as surplus cash or property not used in the business.

Purchase agreements also adjust the price for working capital at closing against a normal level. Agree the definitions of net debt and normalised working capital early; they move the final price as much as the multiple does.

Present a range, not a number

A credible valuation is a range that triangulates methods: DCF as the main reference, cross-checked with sector multiples. Show the sensitivity to WACC and growth so the counterparty sees which assumptions drive the value.

Normalised EBITDA, with every adjustment evidenced.
Sector EV/EBITDA (or EV/Sales if EBITDA is negative) as a market cross-check.
DCF with explicit WACC and terminal value, plus sensitivity.
Bridge to equity value: net debt, minorities, non-operating assets.

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