Company Valuation with Fixed Assets and Inventory

by a searcher from University of Texas at Austin

2 months ago

Broker and I are spot on with company valuation. Except on top of that he wants to add inventory (~$1.5M) and fixed assets (~$300K). 

Company is B2B distribution, so for inventory think industrial cleaning supplies or machine parts (they sell goods and installation services). There is no Work in Progress inventory. Fixed Assets from the balance sheet include displays, trucks, fixtures, computers and "leasehold improvements". 

How are these two items (inventory, fixed assets) typically handled in SMB company valuations?

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34 comments

searcher from INSEAD

I had a similar situation with a seller who was adding 1M inventory into the asking price resulting in the valuation becoming 5.5 times EBIDTA - I ended up walking away from that deal since the valuation was too high at that point for me to even finance the deal using a SBA lender. Happy to chat further if needed on my experience, please DM!

3 weeks ago | like reply | 1 like

investor from United States Naval Academy

Concur with the comments above. When I'm looking at an opportunity I try to have an idea of what amount of inventory and fixed asset value is needed to generate the free cash flow. I can then adjust that purchase price up if they have materially more than needed or down if it needs an immediate inventory buy/CAPEX to get it to the right place.

Heavy equipment is a good example. If the equipment is "almost new", that would plus up the price. If it's completely worn out and needs immediate replacement then I subtract the investment requirement from the price.

1 month ago | like reply | 0 likes

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