How Is a Business Valued? What Do DCF and EBITDA Mean?
Three valuation approaches are combined:
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DCF (Discounted Cash Flow): Estimates a company’s value based on its expected future cash flows.
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Market Multiples: Valuation based on comparable companies and transactions.
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Strategic Value (Synergies).
In addition, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and its conversion into cash flow are analyzed. Following the acquisition, the buyer may carry out a Purchase Price Allocation (PPA) to allocate the purchase price for accounting purposes among the acquired assets and goodwill.
