Valuing a business

Our Approach

When an interested party makes an offer to buy a business, this is most often to acquire all the issued share capital of the company, known as the Total Consideration, on a cash and debt-free basis subject to a normal level of working capital and minimum maintained cash remaining on the balance sheet of the business at completion.

A company’s valuation, the Enterprise Value, is essentially a function of its future cash flow except in rare situations where net asset liquidation leads to a higher value. The company’s earnings before the date of valuation are useful in predicting the future results of the business under certain conditions. The second key in this principle is cash flow as it considers capital expenditures, working capital changes, and taxes.

The DCA Corporate valuation approach is based on the company’s historic performance (after tax profits and adjusted net cash flow). Although future business forecasts are an indicator, these figures are not factored into our calculations as the incumbent management team will be in the best position to evaluate the prospects of the business.

This approach, along with commercial due diligence performed on the sector and what can be realistically funded, will be principal drivers behind the profit after tax multiple applied in arriving at the Enterprise Value.


Where there is cash in the balance sheet, the vendor is able to extract this on completion of the deal after paying off the debt up until completion.

Debt comprises corporation tax, outstanding loans, finance leases, pension deficits, existing deferred income and dilapidation costs.

Working Capital is defined as current operating assets, excluding cash, such as stock, trade debtors and prepayments, less current operation liabilities such as trade creditors, accruals and payroll liabilities.

Any current operating assets or current operating  liabilities determined to be cash, cash-like, debt or debt-like would be excluded from working capital to avoid double counting.

Working capital may increase or decrease over time and some businesses will experience significant swings in working capital due to seasonality.

In assessing what is average normal working capital, it would be normal to review the aforementioned assets and liabilities on a company”s balance sheet over a three to five year period.


The minimum cash required to run a business, following the extraction of surplus cash, would be, by our definition, half of one month’s average Cost Of Goods and one month’s average administrative expenses. Both of these averages would be taken from the respective total cost of goods and administrative expenses figures provided in the company’s financial statements for the past three to five years.