When calculating the valuation for a Value Builder Score, the last three years of adjusted EBITDA or SDE, depending on settings selected, are weighted to provide a balanced view of financial performance. The weighting system assigns more importance to the most recent year while gradually decreasing the significance of older years.
The calculation works as follows:
3 values set
average = (lastYear * 3 + 2yearsAgo * 2 + 3yearsAgo * 1) / 6;
2 values set
average = (lastYear * 3 + 2yearsAgo * 2) / 5;
1 value set
average = lastYear;
By using this weighted calculation method, the Value Builder Score aims to provide an accurate representation of a company’s profitability when determining its valuation.
For more information about the Estimate of Value, you can visit the articles below:
How Do You Get Your Estimate of Value By Industry?
How Accurate Is Your Estimate Of Value?