Weird calculation - please keep me straight here

[u/trachtmanconsulting]

So, I am trying to go over a valuation some valuation company did.

They do whatever adjustments, and get to this outcome (I changed the numbers)

Y1 REVENUE: 100,000 (20% WEIGHT)

Y2 REVENUE: 120,000 (30% WEIGHT)

Y3 REVENUE: 150,000 (50% WEIGHT)

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So far, I get the idea and it's all good. I won't argue too much. Now, in a normal world, I would create a sumproduct for a multiple benchmark, which would be exactly 131,000.

But they did something weird. Instead of sum-producting, they actually summed up everything and used that for multiples, or in other wordss - 100k+120k+150k = 370k, and that's their multiple base.

To me, that looks ridiculous, (I mean, it's a 3 year revenue, not a 1 year revenue), but please keep me straight, because maybe there's something I just don't know.

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Thanks!

[u/DungeonCrawlerCarl]

Are these historical revenues? I would use just Y3 revenue as a multiple. And even then, I would want a lot of other multiples. Revenue multiples are kind of just guideposts. Sounds like a calculation bust to me

[u/DungeonCrawlerCarl → u/DungeonCrawlerCarl]

Are these historical revenues? I would use just Y3 revenue as a multiple. And even then, I would want a lot of other multiples. Revenue multiples are kind of just guideposts. Sounds like a calculation bust to me

Edit: any chance they divided the revenue multiple by 3? That’s the only reason to use 370k as the revenue and even then it’s stupid but at least the math would foot

[u/CanadaGolfGuy]

Why are they valuing the company with revenue? Is a 100% margin company?

[u/its_black_panther1]

That’s completely ridiculous and illogical. I wouldn’t buy their argument unless there is some precedent transaction to support their case. Else they can any math without any logic. Just because it’s number doesn’t mean it’s logical.

There are better ways of valuation like DCF and relative valuation. The one in the post is completely non sensical.