On the income statement owners benefit (OB) is represented as the seller's discretionary cash for one year. A quick method that can be used to value a company is to simply multiply this amount by 2.2727 to estimate the market value of the business. This formula is best suited to businesses whose value is derived from its ability to generate cash flow and profits. The 2.2727 multiplier factors in several standard figures, such as a reasonable living wage, debt service, and a 10% return on investment.

There are other valuation methods, but the above formulas cover a broad range of options. You can pick up a book on valuation methods from your local library if you are interested in finding more formulas.

Valuation Formulas: The Income Method

Assessment: The Importance of Past Performance