Understand the business asset on your Scorecard before judging a particular offer.
Market Value is your company’s “Zillow price”: an estimate of what the market could value the business at before a specific buyer’s payment terms. You can use it to plan while continuing to own the company.
The number becomes useful when you can explain the earnings, the multiple and what is left for your ownership interest. Those inputs also show what the company needs to improve.
Follow earnings through to your equity
The simplified market calculation starts with Normalized EBITDA × multiple = enterprise value. Then subtract debt and other claims, add eligible excess cash and apply supported adjustments to reach company equity. Establish your share and any special rights separately.
Suppose a hypothetical company has $1 million of Normalized EBITDA and a supported 5× multiple. Enterprise value is $5 million. With $800,000 of debt, $200,000 of eligible excess cash and no other adjustments, company equity is $4.4 million. This example assumes a full ownership interest; it is not a quote for your company.
The $4.4 million remains different from sale proceeds after payment terms, fees and taxes. That is the next milestone’s work.
Each earnings adjustment gets multiplied
Normalized EBITDA puts operating earnings on a consistent basis. Start from the books, then document supported adjustments. Remove unusual gains as well as unusual expenses. Keep the cost of the people, property and systems necessary to produce the earnings.
For example, if an owner receives $75,000 for a job that would cost $225,000 to replace, subtract the missing $150,000 operating cost. Removing the owner’s pay altogether would leave the job unpaid. A hoped-for efficiency belongs in a forecast until evidence supports it as part of current earnings.
EBITDA is not cash available for distributions. Taxes, capital spending, working capital, debt payments and reserves still have to be funded.
Give the multiple a reason
Use a relevant dated valuation report, market evidence or explained method. Check the earnings definition, company size, growth, risk and what the quoted price includes. A large public company and a small private business are not automatically comparable.
WACC combines the cost of debt and required equity return under a stated capital structure. It helps explain the connection between risk and value. Taking one divided by WACC is a simplified teaching relationship, not a universal formula for an EBITDA market multiple. Your Assessment score does not mechanically establish the multiple.
Return to the hypothetical example. At the same $1 million earnings but 4×, enterprise value falls to $4 million and equity to $3.4 million. The $1 million difference makes dependence on the selected multiple visible. Your own downside should test an assumption that matters to your plan.
Separate operating cash needs from price adjustments
Working capital funds the operating cycle: receivables and inventory, offset by operating liabilities such as payables. Growth can require more money here before it produces more cash for you.
The valuation normally states what operating assets and liabilities it includes. Do not automatically subtract all required working capital again. A closing adjustment depends on an agreed definition, target and adjustment rule. Cash needed to run the business is not automatically excess cash you can add to value or distribute.
Use one summary with the evidence behind it
| Tool or record | Its job |
|---|---|
| Market Valuation Target, Scorecard page 2 | Preserve the five annual company-equity targets your wealth plan calls for. |
| Normalized EBITDA Worksheet or existing schedule | Reconcile earnings and explain each adjustment. |
| Multiple support | Retain the source, date, chosen multiple or range, reasoning and limitations. |
| Net Debt Reconciliation | Follow enterprise value to company equity and your interest. |
| Working Capital Worksheet or existing model | Explain the operating balances, relevant drivers and any supported adjustment. |
Keep today’s estimate and the supported future forecast separate from the target. The summary is not a substitute for the evidence. Suitable existing records count; five separate forms are not required.
Complete the estimate and examine the gap
Calculate current equity, test a supported future scenario against the same-date wealth requirement, challenge the estimate and use it in an owner review.
Open the four actions and their completion requirements
1. Calculate current Market Equity Value
Identify the business, interest and rights, currency, valuation date, earnings period and future checkpoint. Separate historical actuals, forecast and goals. An ownership percentage alone may not establish the value of a minority interest. Identify material missing evidence.
Reconcile reported net income to EBITDA, then document each normalization adjustment’s amount, period, sign, reason and source. Keep necessary replacement costs. Remove nonrecurring gains as well as expenses. Separate disputed adjustments and hoped-for savings from the supported base.
Apply the supported multiple and reconcile enterprise value to company equity and the owner’s interest. Identify debt, eligible excess cash, other claims and any supported working-capital adjustment. Count obligations once, including relevant phantom stock, leases and change-of-control costs. Required operating working capital is not automatically deducted a second time. Keep ownership share and special rights explicit.
Complete when: the inputs reconcile to source financials and the equity calculation is traceable, with no double-counted cash, debt, working capital or ownership percentage. Label market equity before personal sale fees and taxes.
2. Compare the future scenario with the wealth requirement
Calculate a supported future value on the same earnings-to-equity basis. Compare your interest with what you need the business to contribute at that same date. Keep the chosen Market Valuation Target separate from the forecast and downside. Identify intermediate assumptions where used and reference the role and income commitments from Ownership Goals.
Complete when: current estimate, future scenario and goal are distinct, with matching dates and ownership basis. A shortfall has a next question or decision. A new detailed monthly model and achieving the future goal are not prerequisites.
3. Support the multiple and test a downside
Retain dated comparable-market evidence or an explained valuation method, including its relevance and limitations. A suitable professional report counts. Examine earnings definition, business size, growth, risk and deal differences. The case’s inverse-WACC calculation is a teaching simplification, not proof of an EBITDA market multiple.
Challenge a material earnings adjustment or multiple, recalculate the value and explain the effect on the plan. Keep the base and downside calculations together.
Complete when: the chosen multiple or range has support, uncertainty is visible and the challenge produces a traceable result. No required provider, three-source quota or automatic Velocity Score conversion applies.
4. Use the evidence in an owner review
Record the actual review, evidence inspected, challenge, decision or supported continuation, responsible person, due date and next review. Obtain appropriate financial or valuation input for assumptions you cannot support; retain actual feedback when used.
Complete when: you have reviewed and used the evidence. A report in a folder, AI-written conclusion or scheduled meeting remains preparation. No sale or arbitrary 180-day transaction is required.
Review the milestone-specific 0–3 score and evidence test
0 (Not Started). You have not begun establishing a supported market value for your business.
1 (Learning). You can explain Normalized EBITDA, the multiple, net debt and working capital, and distinguish enterprise value, your equity value and sale proceeds. You have not yet assembled a usable estimate for your business.
2 (In Progress). Your market-value work is underway. One or more requirements remain incomplete: the financial inputs or multiple need support, the equity bridge is unresolved, the future comparison or challenge is unfinished, or the owner review has not occurred.
3 (Installed). You have a dated market-value estimate with supported earnings and multiple assumptions, a traceable enterprise-to-equity calculation and clear ownership scope. You have compared a supported future scenario with the same-date wealth requirement, challenged a consequential assumption, and completed a real owner review with a next action or supported continuation and a review date. Equivalent existing work counts; five separate forms and a sale process are not required.
The evidence test: Show the dated financial evidence, Normalized EBITDA adjustments, multiple support and enterprise-to-equity calculation. Explain which cash, debt, other claims and working-capital assumptions are included, and whose equity is valued. Show the future scenario, its comparison with the same-date Scorecard requirement and a meaningful challenge. Then show the owner review, decision, responsible person/date and next review.
You choose your score after reviewing the evidence. Keep peer, coach and AI assessments separate, including what each person could inspect. Unreviewed evidence is not an automatic zero. Preserve earlier reviews and the reasons for your chosen score. A checked box, prepared AI answer or future meeting invitation does not establish actual use.
Review the assumptions as the business changes
Keep earnings support current as you review the financials. Review valuation inputs quarterly, refresh the full estimate annually and revisit a material change before relying on the number. Preserve the goal while investigating a gap. You may change the operating plan, investment mix or timing; a disappointing forecast does not automatically rewrite what you want.
The market-equity estimate belongs in The Numbers, linked to your original Scorecard in The Plan. Carry the same dated values into the Transaction Value comparison.
Explore the idea further
- Business Valuations with Pat Hobby, episode 309. Supported earnings adjustments and the difference between enterprise value, equity and proceeds.
- Where the Multiple Comes From with Ken Sanginario, episode 407. The operating support and risk behind a valuation. The episode title is not a promise that your multiple will double.
Choose your next step
Put the work in context. The Ownership Assessment helps you examine the capabilities behind your plan, find evidence still to review and choose useful work. It does not turn your self-score into a valuation.
Work through the decisions with support. The 90-Day Boardroom Blueprint connects your goals, financial foundation and decisions in your first usable Owner’s Playbook. You can explore support directly; completing the Assessment is not a prerequisite.