The four valuation methods
What each method is good at, what each one is bad at, and what to do when they disagree with each other.
Somebody has handed you a valuation, or is about to, and you want to know how they arrived at it. Four methods are in common use for a private company. Each answers a slightly different question, and each is unreliable in a specific and predictable way.
A competent valuation uses more than one and then explains where they disagree. A single method, presented as the answer, is a sales document rather than a valuation.
Before any of the detail comes the sentence that matters most on this page. A valuation is not a price. It is an estimate of what a buyer would probably pay. The only real price is what a specific buyer pays on a specific day, and none of the four methods below can tell you that.
The four, in brief
- Multiple of EBITDA. Take adjusted profit and multiply it by a market multiple for your sector and size. This is what most transactions in this market are actually priced on.
- Multiple of revenue. Used when profit is not yet meaningful, or is being suppressed deliberately by spending on growth. Common in software, rare elsewhere, and usually a warning sign when it appears outside software.
- Discounted cash flow. Forecast the cash the business will produce, then discount it back to what that stream is worth today. The most theoretically correct method and the easiest one to bend.
- Asset based. Value what the business owns, net of what it owes. This is the floor rather than the answer, unless the business earns less than its assets are worth, in which case it is the answer.
Multiple of EBITDA
Good at matching how buyers in this market genuinely think and talk. If you want to know what your business would fetch, this method gets closest with the least effort, because it is the language the transaction will actually be negotiated in.
Bad at businesses whose profit moves around, businesses growing quickly enough that last year is not representative, and anything unusual enough that no comparable multiple exists. It also compresses everything into a single number. Two businesses on the same multiple can be entirely different risks, and the method gives you no way to see that.
It has one further weakness worth naming. The multiple is only as good as the comparable transactions behind it, and in European private markets those are thin, self reported and frequently out of date. Anybody quoting you a multiple to two decimal places is quoting you a level of confidence nobody has.
The measure itself, and the normalisation that most owners have never done, has a guide of its own. EBITDA and normalisation
Multiple of revenue
Good at pricing a business that is unprofitable on purpose. A software company spending everything it earns on acquiring customers has real value and no EBITDA, and a profit multiple would value it at approximately nothing.
Bad at almost everything else. A revenue multiple is completely silent on whether the revenue is profitable, which is usually the question. Outside software, when somebody reaches for a revenue multiple it is generally because the profit multiple produced an answer they did not want.
If a buyer or an advisor offers you a revenue multiple for a conventional business, the useful response is to ask what the same business is worth on profit, and then to ask why the two differ.
Discounted cash flow
Good at businesses where the future is genuinely different from the past and where the forecast can be defended. Long contracts, infrastructure, anything with a known and finite life. It is also the only one of the four that handles country risk properly, because that risk goes into the discount rate, which is where it belongs.
Bad at being trusted, and for a good reason. The answer is extremely sensitive to two assumptions the analyst chooses: the discount rate and the terminal growth rate. On a typical five year model, moving the discount rate by one percentage point moves the valuation by roughly nine percent, and moving it by three, which is well inside the range two competent people would argue over, moves it by about a quarter. That is not a flaw in the arithmetic. It is the nature of discounting, and it is why we never present a discounted cash flow on its own.
If you want to understand it properly rather than take our word for the sensitivity, the method has a guide of its own, with the arithmetic shown. Discounted cash flow
Asset based
Good at property businesses, asset heavy manufacturing, and any situation where a business is worth more in pieces than as a going concern. It is the honest floor underneath every other method, and it is the one number in a valuation that does not depend on anybody's opinion about the future.
Bad at service businesses, where the assets are three laptops and the real value walks out of the door at six o'clock. It systematically undervalues anything whose worth lies in relationships, in knowledge or in a customer list.
If the asset based figure turns out to be the highest of the four, that is a significant finding rather than a rounding problem, and it points towards a different guide entirely. Closing your business down
What to do when they disagree
They will disagree. That is the useful part, and a valuation that hides it has thrown away the most informative thing it produced.
- The cash flow method is far above the multiple. The forecast is doing the work. Ask what has to be true for that forecast to happen, write those conditions down, and ask yourself whether you would bet your own money on them. A buyer will be asking exactly that.
- The asset value is above the earnings value. The business is earning less than its capital is worth. That is a real and actionable finding. It usually means either a margin problem that can be fixed, or a genuine case for closing rather than selling.
- The revenue multiple is far above the profit multiple. The business has scale without economics. Either the margin recovers or the valuation does not hold. Buyers will assume the second unless you can show them the first.
- They all agree closely. This happens with stable, unglamorous, well run businesses, and it is a good sign. It usually means the number will survive due diligence, which is worth more than a higher number that will not.
Where the multiples come from
The Argos Mid-Market Index is a quarterly index published by Argos Wityu, a European private equity firm, with Epsilon Research. It tracks what buyers actually paid for mid sized European businesses.
In Q1 2026, the overall median was 8.6×. Trade buyers paid a median of 7.8×, while investment funds paid a median of 10.0×.
Scope: eurozone UNLISTED companies, equity value €15M to €500M, majority-stake acquisitions, six-month rolling median.
EXPLICIT EXCLUSIONS: financial services, real estate, and high-tech / technology sectors are not included in the Argos Index universe.
Read the source from Argos Wityu / Epsilon Research
Note what that scope excludes. Financial services, real estate and technology are outside the index entirely, so if you are in one of those sectors, any multiple quoted to you from this source has been extrapolated rather than observed. That may still be the best available estimate. It is not the same thing as evidence, and anyone presenting it as evidence is overstating what they have.
Run all four on your own business
Reading about the methods is useful. Seeing them applied to your own numbers, and seeing where they disagree, is considerably more useful.
Our valuation runs the methods separately, shows each result, and explains the gaps between them. It is free and takes about ten minutes.
Step one of three: see your number, free, with no account and no name.
See what it's worth