This is one of the most important and worst-answered questions in business. "It's worth what someone is willing to pay." Yes, but how do you get to that number? How do you defend it? How do you know if the offer you have is fair? That's where valuation methodologies come in.

Why are there several methodologies?

Because the value of a company depends on why you’re valuing it, who’s buying it and what stage it’s in. Valuing a stable SME with 15 years of history is not the same as valuing a startup that’s been operating for 2 years and still isn’t profitable.

For SMEs: DCF and Multiples

1. DCF: Discounted Cash Flow

It’s the most rigorous methodology. The logic is simple: a company is worth what it will generate in the future, brought back to today’s value.

You project the free cash flows for the next 5 to 10 years, estimate a terminal value (what the company is worth after that period) and discount everything at a rate that reflects the business risk (WACC).

Advantage: The most technical and defensible. Disadvantage: Very sensitive to assumptions. A small change in the growth rate or WACC can move value significantly.

Example: A services company with stable annual cash flows of $200M, growing at 5% and a WACC of 12%, can be worth around $2,000M under DCF.

2. Market Multiples

Here the logic is comparative: how much are they paying for companies similar to yours?

The most common multiples are:

  • EV/EBITDA: If similar companies sell at 6x EBITDA and your EBITDA is $300M, your company is worth ~$1,800M.
  • EV/Revenue: More used when EBITDA isn’t representative.
  • P/E (Price/Earnings): Common in public companies.

Advantage: Fast and reflects what the market is actually paying. Disadvantage: Depends on having relevant comparables, which in Latin American markets isn’t always easy.

For Startups: different metrics

An early-stage startup almost never has positive cash flow or EBITDA. Applying a DCF or EBITDA multiple gives an absurd or negative number.

That’s why startups are valued with different logic:

Revenue multiples (ARR)

For SaaS startups or recurring-revenue businesses, an ARR (Annual Recurring Revenue) multiple is used. A startup with $1M in ARR growing 100% annually can be worth between 5x and 15x its ARR depending on the sector and market timing.

Berkus Method

For pre-revenue startups. Assigns value to 5 elements: idea, prototype, team, strategic relationships and product/sales. Each can add up to $500K to the value.

Venture Capital Method

Estimates what the company will be worth at exit and discounts back to today’s value, given the return the fund expects.

The golden rule

No methodology gives the “correct” value. The real value of a company is the one negotiated between two informed parties. But having a rigorous valuation gives you the floor to negotiate from, and the credibility to defend it.

At MOVA we do valuations for SMEs and startups using the right methodologies for each case. So you come to the table knowing exactly what you have.