Goodwill Multiple

The Multiple of Earnings for Goodwill calculator computes the value of goodwill based on a multiple of corporate earnings.

INSTRUCTIONS: Choose units and enter the following:

• (AE)  This is the average corporate earnings
• (M)  This is the valuation multiple

Goodwill (GW):  The calculator returns the value of goodwill in US dollars (USD).  However, this can be automatically converted to compatible units via the pull-down menu.

The Math/Science

Goodwill is a value attributed to a company in excess to the book value.  A common driver of goodwill is earnings, and a common method of computing good will is by using a multiple of earnings.

In many cases, a valuation attributes a value of five (5) times earnings.  This suggests that the acquiring company can have the acquisition pay for itself in five years.

The formula for Goodwill based on Earnings Multiple is:

GW = AE • M

where:

• GW is goodwill based on an earnings multiple
• AE is average corporate earnings or EBITDA.
• M is a multiple of earnings.