What is the formula to calculate value in a business?

The correct formula to calculate the value of a business focuses on the relationship between cash flows and a market multiple. In this case, the formula is cash (Recasted EBITDA) multiplied by the market multiple (MM) to arrive at the business's value.

Using recasted EBITDA is essential as it provides a clearer picture of the company's operational performance by adjusting for one-time expenses or income, ensuring that the valuation reflects the true earning capacity of the business. The market multiple is a valuation metric derived from comparable companies that have been sold or are publicly traded, which helps in determining a reasonable price for that particular business based on industry standards.

Multiplying these two elements (Recasted EBITDA and market multiple) reflects how investors typically evaluate potential returns based on earnings, leading to a more accurate valuation of the business. This method is widely used in practice as it captures both the company's profitability and the market conditions within which it operates.