Consider this overly simplistic example:
A stable (not growing) business with $10MM in Rev and $4MM in COGS. Inventory lead times are 6 months, and orders are being placed every quarter ($1MM each time). EBITDA = $2MM. Industry multiples of EBITDA are ~3x. Inventory on hand = $3MM of which $2MM will sell in 1 year and 1 MM in the second year.
How would you value this business as a buyer? How would an appraiser/bank look at it?
I think an appraiser/bank might say: Valuation = 3x EBITDA = $6MM + Excess inventory ($1MM) = $7MM.
Thoughts?
Valuing a business with excess inventory and high working capital needs
by a searcher
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
104 views
4 comments
Sign in to see all replies.
Create an account.