Business Valuation Methods

Business valuation methods:

Knowing how much a company is worth is not just a numerical question: it is the basis of any significant strategic decision. From a sale or acquisition to the entry of an investor, through succession planning or a financing round, the valuation acts as the starting point that guides the negotiation. In specialised advisory work, such as that carried out by Maraz Corporate Finance, valuation is not seen as an exact science, but as a technical process grounded in professional judgement that seeks to capture the essence of future wealth generation.

In this article we explain the three most widely used business valuation methods in the market, when to apply each one, and why combining methodologies — so-called value triangulation — always offers the most robust and defensible result before a sophisticated counterparty.

The value of a company depends largely on the purpose of the valuation and on the observer: a financial investor will prioritise operating profitability, while a strategic buyer may pay significant premiums for synergies or brand positioning.

We explore the three most relevant business valuation methods: the Adjusted Net Asset Value, Market Multiples and Discounted Cash Flow (DCF).

Adjusted Net Asset Value (ANAV): the conservative starting point

Balance-sheet-based valuation methods represent the most conservative and static approach to valuation, focusing their analysis on the wealth accumulated by the company at a specific point in time. Although they are often criticised for not considering the capacity to generate future profits, they remain critically relevant in capital-intensive sectors, companies undergoing restructuring or as a control mechanism for establishing the minimum value of a transaction.

The starting point is book net equity — the difference between assets and liabilities recorded under generally accepted accounting principles. However, for corporate valuation purposes this figure is usually insufficient, since assets are often recorded at historical cost less depreciation, which does not reflect their fair market value. The ANAV corrects these distortions by restating each balance sheet item at current market prices.

ANAV = Book Net Equity + Unrealised Gains - Unrealised Losses ± Tax Effect of the Adjustments

This method is fundamental for asset-holding companies, industrial companies with heavy investment in plant and equipment or real estate entities. However, it has severe limitations in today's economy, characterised by the relevance of "asset-light" models. For a services or technology company, the ANAV will tend to undervalue the business by failing to capture the value of human capital, intellectual property or the recurrence of the customer portfolio — intangible assets whose quantification is the subject of a specific brand valuation.

In liquidation scenarios, the calculation must also deduct all the costs of the winding-up process: severance payments, legal expenses, sales commissions under forced-sale conditions and early termination of contracts. This liquidation value represents the lowest possible threshold and the floor of any negotiation.

LIQUIDATION VALUE = ANAV – Liquidation Costs

Valuation by market multiples: efficiency and comparability

Market-based valuation is the most widespread method in Spanish mid-market transactions, thanks to its ability to synthesise current investor sentiment and provide a quick, understandable reference. This approach rests on the premise that companies with similar risk, growth and profitability profiles should trade at similar multiples of their fundamental metrics.

Valuation by multiples involves comparing the company with other similar companies in the same sector or industry, using indicators such as the P/E ratio (Price to Earnings) or EV/EBITDA (Enterprise Value to EBITDA). This methodology is fast and relatively simple, offering a comparative view of market value. However, its effectiveness depends on the availability of comparable companies and the reliability of the multiples selected. Moreover, it does not consider the particularities and unique potential of the company being valued, which can lead to undervaluation in the case of unique or innovative businesses, and to overvaluation in companies with lower conversion of profit into cash or lower future growth than their competitors.

Normalised EBITDA: the reference metric

In multiples analysis, EBITDA (earnings before interest, taxes, depreciation and amortisation) has established itself as the preferred indicator, since it allows the gross operating profitability of companies with different capital structures and tax regimes to be compared. For it to be useful, however, it must be normalised: cleansed of non-recurring items that distort the operating reality of the business.

The most common adjustments include adding back shareholders' personal expenses unrelated to the professional activity, correcting rents paid to related parties at non-market prices, eliminating gains on the sale of non-strategic assets and excluding one-off legal costs or non-recurring mass redundancies.

Sector multiples in Spain and Europe (2026)

The multiple applied depends not only on the sector, but also on the size of the company (the so-called size premium), its expected growth rate and the quality of the management team. In Spain, small and mid-market transactions usually show a discount to large listed companies, due to lower liquidity and greater dependence on key individuals.

Although EBITDA is the standard, other metrics provide complementary perspectives. The P/E ratio (Price-to-Earnings) is widely used for listed companies; for 2026, the IBEX 35 shows an average P/E of around 14.5x. Sales multiples are essential for technology start-ups that prioritise market share capture over immediate profitability, with ranges of between 3x and 8x in sectors such as SaaS or e-commerce.

EQUITY VALUE (P/E) = Net Profit × Multiple

EQUITY VALUE (EV/EBITDA) = EBITDA × Multiple – Net Financial Debt

Discounted Cash Flow (DCF): the rigour of intrinsic valuation

The Discounted Cash Flow method is widely regarded as the most precise and complete methodology for valuing companies. This method projects the company's future cash flows and discounts them to the present using an appropriate discount rate, reflecting the risk associated with those cash flows. By focusing on the intrinsic value of the company based on its capacity to generate cash in the future, DCF provides a more realistic and detailed view of business value.

Free Cash Flow (FCF)

The core of DCF is Free Cash Flow (FCF), which represents the cash available to all capital providers — shareholders and financial creditors — after covering operating and investment needs.

FCF = EBIT × (1 - t) + Depreciation & Amortisation - CAPEX - ΔWCR

One of the most frequent technical errors in professional practice is ignoring the change in Working Capital Requirements (WCR) in aggressive expansion plans, which overstates the real liquidity available. Equally critical is the distinction between Enterprise Value — the total value of the operating business — and the value of the shares (EqV), which is what the buyer pays once net financial debt has been deducted.

EqV = EV - Net Financial Debt - Non-Operating Liabilities

The discount rate: WACC

The discount rate used to discount the cash flows is the Weighted Average Cost of Capital (WACC), which reflects the cost of equity and of debt according to the target capital structure. The cost of equity is calculated using the CAPM model:

Ke = Rf + β × (Rm - Rf) + α

Once the cost of equity (Ke) has been obtained, it is combined with the net cost of debt (Kd) to calculate the WACC, weighting both according to the company's capital structure:

WACC = Ke × [E / (E + D)] + Kd × (1 - t) × [D / (E + D)]

Where: E = market value of equity · D = financial debt · Kd = gross cost of debt · t = tax rate · (1 - t) captures the tax shield on interest.

Since it is impossible to project cash flows in detail to infinity, the DCF is divided into an explicit projection period (usually 5 to 10 years) and a Terminal Value calculated using the Gordon-Shapiro perpetual growth model. The perpetual growth rate (g) should not exceed the expected nominal growth of the economy, to avoid theoretical inconsistencies. Given the high sensitivity of the final result to small variations in WACC or g, every professional report must include a sensitivity matrix exploring different scenarios.

Why is DCF considered the best valuation method?

• Forward-looking focus: Unlike methods based on historical or comparative data, DCF values the company according to its future potential to generate cash, considering growth, investment, changes in working capital and market trends.
• Customisation: It allows company-specific adjustments, such as tailored growth projections, operating margins, cash conversion or the selection of a discount rate that reflects the specific risk of the business.
• Risk consideration: It explicitly integrates risk analysis through the discount rate, offering a more precise measure of the present value of future cash flows according to their cost of financing.

Although DCF is a precise and generally accepted method, its precision depends largely on the quality of the cash flow projections and on the appropriate choice of discount rate. This requires a deep understanding of the business and its environment, as well as advanced financial knowledge.

Business valuation methods: when to use each one?

Conclusion: value triangulation as the standard of excellence

There is no single infallible method; excellence in corporate finance lies in knowing which methodology to prioritise according to the sector, the growth stage and the buyer's profile. When the company has a group structure or several business units, triangulation is approached through a valuation of groups of companies and holdings (sum of the parts). And for the business owner seeking to maximise value ahead of a transaction, preparation is the most powerful price multiplier: it is worth reviewing how to increase the value of the company before selling it.

For the business owner seeking to maximise value in a corporate process, the lesson is clear: financial and operational preparation is the most powerful multiplier of the sale price. A company that can demonstrate recurring cash generation, a solid management team, a well-defined AI strategy and a clear commitment to ESG standards will not only obtain a higher valuation, but will attract the highest-quality investors.

The involvement of specialised financial advisers becomes indispensable: an independent expert not only provides the technical rigour needed to defend the price before sophisticated counterparties, but acts as the strategic bridge needed to turn a mathematical calculation into a successful transaction.

Do you want to know how much your company is worth?

At Maraz Corporate Finance we are experts in Business Valuation, with more than 10 years of tailored valuations for the middle market. Whether you are preparing a sale or acquisition (M&A) or need to know the value of your company to take a decision, contact our team.

Javier de Rojas Roca de Togores

Partner - Maraz Corporate Finance

Frequently asked questions about business valuation methods

What is the best method for valuing a company?

There is no single infallible method: it depends on the type of company and the purpose. Discounted Cash Flow (DCF) is the most rigorous for companies with predictable cash flows, market multiples are the most widely used in middle-market transactions for their speed, and the Adjusted Net Asset Value is the most appropriate for asset-intensive companies or those in liquidation. Professional practice combines several — so-called value triangulation — to obtain a defensible range rather than a single figure.

Why can two buyers value the same company differently?

Because value depends on the observer and their purpose. A financial investor prioritises operating profitability and cash generation, while a strategic buyer may pay a significant premium for synergies, market share or brand positioning that have value only for them. That is why the same company can have a "standalone" value and a higher value for a specific buyer: part of the adviser's job is to identify the buyer who values the asset most.

What is normalised EBITDA and why is it so important in valuation?

It is EBITDA cleansed of non-recurring items that distort operating reality: shareholders' personal expenses, above-market rents paid to related parties, gains on asset sales or one-off legal costs. It is crucial because in a multiples-based valuation the price is obtained by multiplying that EBITDA by a multiple: every euro of normalised EBITDA translates into several euros of enterprise value, so the adjustments have an enormous impact on the final price.

Why is the DCF considered the most accurate method?

Because it values the company according to its future capacity to generate cash, not according to historical or comparative data. It allows the growth, margin and investment projections of each business to be customised, and it explicitly integrates risk through the discount rate (WACC). Its downside is that it is very sensitive to the assumptions: small changes in WACC or in the perpetual growth rate (g) move the result significantly, which is why every rigorous report includes a sensitivity matrix.

How much does it cost to value a company and when should it be done?

The cost depends on the complexity of the business, its group structure and the purpose of the valuation. It should be commissioned whenever a significant strategic decision is at stake: a sale or purchase, the entry or exit of a shareholder, succession planning, a financing round or litigation. Having a professional, independent valuation before sitting down to negotiate is what allows the price to be defended with technical arguments against a sophisticated counterparty.