Article
Business valuation methods: DCF, multiples and net assets on one example
Three valuation methods give three different numbers, and that is normal. I show them on the same model company you can recalculate in the demo on this site: where the differences come from, how to reconcile them to one value and where enterprise value ends and equity value begins.
Author: Tomasz FordymackiPublished:
The model company: inputs
A services and trading company, year 2025: revenue PLN 31.6m (up 31 % year on year), EBITDA 3.4m (10.8 % margin), net profit 1.9m, equity 8.5m, interest-bearing debt 4.2m, cash 1.6m. Valuation assumptions: cost of capital (WACC) 14 %, a 6.0 × EBITDA multiple, 12 % annual revenue growth in the forecast, a 12 % target EBITDA margin. The data is fictitious, but the proportions are typical of a mid-sized Polish private company.
Three methods, three results
| Method | How it is computed | Enterprise value | Weight |
|---|---|---|---|
| Income (DCF) | five years of cash flows + terminal value, discounted at 14 % | PLN 22.7m | 50 % |
| Market | 6.0 × EBITDA of 3.4m | PLN 20.4m | 40 % |
| Asset-based | equity of 8.5m × 1.1 adjustment | PLN 9.35m | 10 % |
| Reconciled | weighted average | PLN 20.4m | 100 % |
DCF comes out highest because the forecast assumes further growth and a better margin. The multiple only looks at the last year, so it does not see that growth. Assets are lowest, because in a services company value sits in clients, the team and processes, not in fixed assets. That is why the asset method gets only 10 %: it is the floor below which an owner should not sell, not a valuation of a going concern.
How much of DCF is terminal value
Five years of discounted cash flows give about PLN 8.0m in this example. The remaining 14.7m, almost two thirds of the DCF result, is terminal value: everything the company is expected to earn after year five. That is why one change in the cost-of-capital assumption moves the result more than any adjustment to next year’s forecast. A valuation that does not show the share of terminal value hides its most important assumption.
From enterprise value to equity value
- 1Enterprise value (EV): PLN 20.4mThe value of the whole business, regardless of how it is financed.
- 2Less net debt: PLN 2.6mInterest-bearing debt of 4.2m less cash of 1.6m. In a real deal you add leases, overdue taxes, declared dividends and the deviation of working capital from normal.
- 3Equity value: PLN 17.8mThe amount for the owners before discounts for illiquidity and for a minority stake.
- 4Range: PLN 16.9–19.0mWACC one point higher and one point lower. This range, not a single number, is the right starting point for negotiation.
Frequently asked questions
Which business valuation method is best?
None on its own. For a growing company with predictable cash flows the main method is DCF, for a mature company in a sector with many deals the multiple, for an asset-heavy company (real estate, holding) net assets. A sound valuation computes at least two methods independently and explains the gap between them.
What cost of capital (WACC) to use for a Polish private company?
For mid-sized Polish private companies in 2025–2026 typically 10–14 %. The smaller the company, the greater the owner dependence and client concentration, the higher. The example uses 14 % because the company grows fast and collects receivables slowly.
Is a business valuation the sale price?
No. A valuation is a justified range of value under explicit assumptions. The price comes out of negotiation and depends on the buyer: a trade buyer pays for synergies, a financial one for cash flows, and both will argue about EBITDA normalisation and net debt. A good valuation tells you the amount below which the conversation stops being worth it.
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