Calculating Business Value:
Step by Step from Adjusted EBITDA to Purchase Price

If you want to calculate the value of your business, you do not need a collection of formulas, but a clean sequence. First you adjust the figures, then you choose a method, and then you bridge from the value of the operating business to the value of your shares. This guide takes you through all the steps with one continuous worked example. It also shows where online calculators and rules of thumb reach their limits.

How does calculating business value work in practice?

The calculation follows six steps: collect the figures, adjust the result, choose a method, calculate enterprise value, bridge to equity value and check the result for plausibility. Each step builds on the previous one. An error in the adjustments is multiplied by the multiple and feeds through to the purchase price.

You will find an overview of all common methods in our guide to business valuation. This article is about the actual calculation.

Which figures do you need for the calculation?

You need the annual financial statements for the last three to five financial years, the current management accounts (in Germany, the betriebswirtschaftliche Auswertung, BWA) and a forecast for at least the next two to three years. In addition, you need loan agreements, pension commitments, rental and leasing contracts, and a list of receivables, inventories and liabilities.

Several years are important because a single year contains random effects. German tax law also works with an average: under § 201 BewG, the annual earnings are generally derived from the operating results of the last three completed financial years.

Example: The fictitious Muster Präzisionsteile GmbH, a supplier to the mechanical engineering industry, reports EBITDA of €1,420,000 (2023), €1,510,000 (2024) and €1,570,000 (2025). The average is €1,500,000.

How do you adjust EBIT and EBITDA correctly?

You adjust the result by correcting all items that a new owner would not have in that form. The aim is a sustainable result that can also be achieved without you. Four areas are almost always affected.

Imputed owner’s salary

Set your salary at the level of an employed external managing director. § 202 BewG describes the benchmark in exactly this way: the remuneration that a management without a shareholding would receive. Family members working without pay are also recognised at a notional salary. The IHK Schwaben (Swabian Chamber of Commerce and Industry) likewise names the imputed owner’s salary as a central correction in the multiples method.

Private costs, rent and one-off effects

Remove private costs run through the company (vehicles, travel, insurance). Set rent for properties that you own privately at market level. Also remove one-off expenses and income, such as a lawsuit or a sale of assets. § 202 BewG also provides for a correction of extraordinary expenses and income.

Example (average values per year):

In the example, the adjustment reduces EBITDA by €90,000. With a multiple of 5.5, this corresponds to just under €500,000 of business value.

Which method should you choose?

For a market-oriented value indication for a mid-sized company, the multiples method is the usual starting point, supplemented by an earnings-based cross-check. Expert valuers work in accordance with IDW S 1, whose revised version (IDW S 1 as amended in 2026) was published on 8 April 2026, according to Forvis Mazars. For German inheritance and gift tax, there is the simplified capitalised earnings method under §§ 199 to 203 BewG.

Important: for tax purposes, § 11 (2) BewG sets net asset value as the floor. For price-setting between buyer and seller, on the other hand, what matters is which method an acquirer uses. You will find more detail in the guides on EBITDA multiples and the capitalised earnings method.

How do you calculate with the multiple?

You multiply adjusted EBITDA by a factor that is customary for the industry and size, and obtain enterprise value. The DUB SME Multiples, compiled from the assessments of more than 25 M&A advisors and financial institutions, give EBITDA ranges for Q3/2026 in machinery and plant engineering of 3.6 to 5.1 for the smallest size class and 4.6 to 6.0 for the medium size class.

Example: The company is well positioned, and the second management level works independently. We apply a multiple of 5.5.

€1,410,000 × 5.5 = €7,755,000 enterprise value

At the lower and upper end of the range (4.6 to 6.0), enterprise value would be between €6,486,000 and €8,460,000. This shows how strongly the choice of factor affects the result.

How do you get from enterprise value to equity value?

From enterprise value, you deduct financial debt and debt-like items, add free cash and correct deviations in working capital. This logic is called cash-free/debt-free. Rödl & Partner counts among the debt-like items, for example, pension provisions, tax provisions, customer prepayments and overdue trade payables.

For working capital, a normal level is agreed. If it is below this level on the reference date, the difference reduces the purchase price, because the buyer would have to inject liquidity.

Example:

Of the €7,755,000 enterprise value, €6,455,000 remains for the shares. The deductions add up to €1,300,000. How these items are dealt with in the purchase agreement is explained in the guide to purchase price negotiation.

How does the cross-check with the simplified capitalised earnings method work?

With the simplified capitalised earnings method, you multiply the sustainable annual result after tax by the statutory factor of 13.75. Under § 202 BewG, the starting point is the taxable profit, adjusted for the owner’s salary and one-off effects. A positive operating result is reduced by a flat 30 percent for income taxes. The factor of 13.75 is set out in § 203 BewG and, under § 265 (11) BewG, applies to valuation dates after 31 December 2015.

Because interest is already included in the profit, the method directly produces a value of the equity. Under § 200 (2) BewG, non-operating assets are added separately.

In the example, the tax value is around 54 percent above the market value. The factor of 13.75 corresponds to a capitalisation rate of about 7.3 percent. Buyers of small and medium-sized companies usually demand a higher return because of owner dependency and size. The simplified method is therefore not a good benchmark for the sale price.

How do you check the result for plausibility?

You check the result for plausibility by examining it from a buyer’s perspective. Three questions help:

• Financeability: Can a buyer service the purchase price from free cash flow within a reasonable period?
• Comparison: Is the multiple within the industry range, and are there reasons for a position at the upper or lower end?
• Range: How does equity value change if you shift the multiple by 0.5?

In the example, the range of 4.6 to 6.0 results in an equity value between €5,186,000 and €7,160,000. A value indication should always be communicated as a range.

What can online calculators do, and where are their limits?

Online calculators provide a rough order of magnitude within a few minutes. No more than that. They mostly work with unadjusted inputs and flat-rate factors. They do not recognise owner dependency, customer concentration or an investment backlog. Above all, the bridge to equity value is almost always missing. In the example, this step alone accounts for €1,300,000.

Which mistakes happen most often in the calculation?

The most common mistakes arise in the adjustments and in the bridge:

• The multiple is applied to the unadjusted result.
• An owner’s salary that is too low is not corrected, so the result looks too high.
• Enterprise value and the purchase price for the shares are confused.
• Pension provisions and shareholder loans are overlooked.
• The tax value based on the factor of 13.75 is expected as the sale price.
• A single record year is used as the basis instead of an average.

If you are selling a GmbH (German limited liability company), you should also be aware of the particular features of selling GmbH shares.

What is your next step?

Your next step is an adjusted overview of results for the last three to five years and an honest list of all debt and debt-like items. With these, a robust range can be calculated. What happens after that is shown in the guide to the business sale process.

If you would like to have your figures reviewed from an independent perspective, we offer a confidential introductory meeting.

Note: This article does not replace tax or legal advice. All calculations are value indications based on a fictitious example and do not constitute a valuation report.