One of the most exciting fields today is ecommerce, as more people than ever are using the internet to purchase items. However, it can sometimes be difficult to know how much these high-tech companies are worth. People have made entire careers out of business valuation
to determine the true value of companies. In a recent article for Practical eCommerce, Manny Shah writes that it is not enough to simply take into account profits when trying to figure out how much internet-based companies are worth. He says that people must be aware of how in demand a product will be in the future and whether it has a sustainable business. Furthermore, he writes that businesses should use Sellers Discretionary Earnings and Earnings Before Interest, Taxes, Depreciation and Amortization to discover how much a company is truly making. According to Shah, three out of five web-based companies have been negatively affected by the downturn in the economy and competition from large online retail sites, including Amazon and eBay. Shah explains that in order to make sure a business valuation is high an entrepreneur must verify that their firm offers something that is not easily found on countless other websites. By maintaining consistently high revenue year after year, people will be able to get a favorable price from a buyer looking to invest in a solid firm. "Another observation - If you are in early years of growth and you have increasing revenue year to year but you are investing all of your profit back into your business to grow it, you may not show positive bottom line, but your business may be the best investment buyer can make," Shah wrote for the website. "That is why such one-time expenses done to grow the business (e.g. purchase of an order fulfillment or inventory management software) can be added back with appropriate explanation." One social media company recently grabbed headlines after going public. LinkedIn's IPO reached $45 per share, rising to more than $120 dollars in trading just days later. CBS Money Watch reports that the companies company's current business valuation on Wall Street is trading at 30 times revenues.