You know what Your Score is – right? Your Score is your business valuation – or equity value – which is approximated by this formula:
EBITDA (Operating Income) times valuation multiple less net debt equals Equity Value (Your Score)
Are you doing what you can to improve Your Score? Each component of this valuation equation can be managed for improvement. Double Eagle Advisors… Helping Your Business Improve Its Score. Can we help you Improve Your Score?
| Initial Value | Illustration | Change | |
|---|---|---|---|
| EBITDA, or Operating Income | $3,000,000 | $3,300,000 | 10% Increase |
| Valuation Multiple | 4.0 times | 5.0 times | 1.0 times |
| Enterprise Value | $12,000,000 | $16,500,000 | |
| Less – Net Debt | $5,000,000 | $4,000,000 | 20% Decrease |
| Equity Value (Your Score) | $7,000,000 | $12,500,000 | 80% Increase |
This is an illustration – actual results will vary. Point is that each line and each metric that comprises the equity value formula can be managed for improvement.
Increase your EBITDA
Cost reductions…eliminate products selling at a loss…reductions in overhead…fine-tune sales commission programs. Small adjustments can result in meaningful increases in EBITDA. Impact on Equity Value is 4-5 times, or whatever your valuation multiple is.
Increase your Valuation Multiple
Most difficult and most rewarding metric to improve. Often driven by market trends/dynamics and company size you cannot control. Also influenced however, by things you can control such as management structure, board oversight, policies and procedures. Translation: does your company distribute control and responsibility across a management team? Or are decisions concentrated with one individual who also has all customer relationships? Valuation multiple likely to be larger with a distributed structure as compared to a lower multiple with a single point of control. Payback here is significant for improvement in valuation multiple.
Reduce your Net Debt
Very straightforward and often overlooked as an opportunity to increase shareholder value. Every dollar reduced from net debt increases shareholder value by a like amount. Can be a one-time event such as reducing a security deposit or selling an idle piece of equipment. Could also be a continuous event such as improving collection on delinquent receivables or reducing inventory levels on slow moving products.
Double Eagle Advisors can help you prioritize and focus on the metrics that provide the most opportunity for your business and are the most controllable by you. Let us help Improve Your Score!
