When using the Black Box Scenario Planner, you have the ability to choose how your Estimate of Value is calculated. This ensures that the valuation method aligns with your business goals and financial expectations. Below, we explain the three options available:
1. 3-Year Weighted Average
This option takes your past three years of earnings into account, assigning greater importance to more recent years. The calculation method follows these rules:
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If all three years are available:
Average = (Last Year * 3 + 2 Years Ago * 2 + 3 Years Ago * 1) / 6
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If only two years are available:
Average = (Last Year * 3 + 2 Years Ago * 2) / 5
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If only one year is available:
Average = Last Year
This approach smooths out fluctuations while giving more weight to recent performance.
2. Last Year
Selecting this option means your valuation is based solely on the most recent year’s earnings. This can be useful if your business has undergone significant changes and past performance is less relevant.
3. Future Projected
With this option, you can manually enter a custom number based on your expectations for future earnings. This is ideal for businesses that anticipate significant growth or operational changes that will impact their future financials.
Which Option Should You Choose?
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For stability and a balanced view → Choose 3-Year Weighted Average
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For a snapshot of recent performance → Choose Last Year
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For forward-looking growth projections → Choose Future Projected
These options allow for flexibility in evaluating your business’s value based on historical performance, recent trends, or anticipated growth.