The true answer is a company’s value is what a buyer is willing to pay and a seller is willing to accept in an arm’s length transaction. In determining the starting point, or asking price, a valuation will be performed on the company that takes into account the financial trends and opportunities, the industry, the market for both the company’s goods and services and the company itself, the company’s assets (including tangible such as inventory and equipment, and intangible such as intellectual property and goodwill), and the management team and staff, to name a few. Valuing a company is as much an art as it is a science, triangulating multiple methodologies, and trying to determine the future value a buyer can derive from the company while they operate it as well as when they sell it. Most company values are described by a metric, such as a multiple of revenue or cash flow (public company values are often described in terms of Price to Earnings, or the P/E ratio). You may have heard that buyers buy cash flow. For companies below $10 million in value, one of the most widely used metrics is the multiple of a type of cash flow known as Seller’s Discretionary Earnings or SDE (which we will go into next week).