Investing Dragon's Den style

R

redrow

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Hi
I have an opportunity to invest in a company that I believe has a good product. My question is how to you value a company. Lets say for example it has a yearly turnover of 250K. How does that relate to the overall value of the company??? is it as straight forward as 25K gets me 10%????
 
There is no straight forward answer as there are too many variables to go into here. Will simply say that there is no real point looking at turnover as a base for your valuation. Most valuations are based on the value of the company's assets and the present value of future profits/cash flow.
 
The only reasonable basis for valuing a company is based on EBITDA (earnings before tax, depreciation & amortisation). However for a small company, such as that you are intereseted in investing, this basis would be the subject of too many variables to present an appropriate value. I.e. who would buy the company?
I would only consider investing in a company if I was very very confident with the current owners/management and trusted then fully with the level of investment.
 
its a new product and the product has just come through R&D. The sales projections are good but im not sure what they are based on. Assuming its based against other similar products in the field the turnover would be about 250-500k/year.
 
Projections are effectively meanlingness unless based on historical performance. Be aware that this would be a high risk investment and unless you have full confidence in the owners/management of this business you should not invest in it.
I have seen a large number of business proposals that looked good on paper but failed to get off the ground. My advice to you would be to steer clear of this unless you are prepared to lose your money.
 
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