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What is a small business really worth?

What is a small business really worth?

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Answer #1

The value of a small business is based upon the free cash flows it generates. The Value= FCF/(Required rate of return- growth rate)

Free cash flows are calculated as EBIT (1-tax rate) + (depreciation) + (amortization) - (change in net working capital) - (capital expenditure). This refers to the cash generated by a business after meeting its fixed capital and working capital needs. The required rate of return is the rate expected by the owners of the business from the investment.

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