Does the type of company or franchise status play a role in determining value?

In response to your question about different types of businesses, the type of company plays a major role in determining value.

In short, all of our valuation multiples are industry-specific, size-adjusted and company-specific risk reflective.

Besides looking at revenue growth and profitability, each of the various "slider" questions impact this final multiple. In addition, we adjust the final estimate depending on the absolute and relative level of inventory and FF&E - with additional adjustment for intangible asset holdings.

We use both earnings/cash flow multiples and revenue multiples, with the weight between the two dependent on various factors such as profitability (firms with high and stable earnings/cash flows will almost always be valued based on same).

Although we do not adjust our multiples for franchise status (because every franchise is so unique and may have multiples above or below the industry norm), the higher earnings and revenues of a franchise in a given business category will in and of itself elevate the multiples/value.

You could augment the earnings/cash flow level by say 10% to 20% if you were valuing a flagship franchise like McDonalds. To do this, determine what the discretionary earnings are (sum of pretax income plus owner compensation plus interest expense plus non-cash charges) and then include 10% to 20% of this total in the "one-time/non-recurring expense" line and this will in effect raise the value by 10% to 20%. This is not an ideal solution, but it will reach the desired result.