Financial Advisory firms are almost universally categorized as nano-cap companies. That means that they are already discounted versus a public company peer at a starting rate of -21%. Now, for firms with over $750M in AUM, we use a graduated scale.
Once the starting discount rate is defined (-21% for all firms under $750M in AUM, 20% for firms between $750M and $1.6B and graduating down from there to a minimum of 17%), the Truelytics eValuation adds in an additional 5% discount in each of the three primary categories in the platform (Business Stability, Client Stability and Revenue Stability) based on a Firm's scores. This leads to a potential discount percentage that ranges from a minimum of 17% to a maximum of 36%.
Truelytics takes the most likely discount rate and then provides a range of potential valuations based on EBOC (earnings before owner's compensation) that takes into consideration possible variations in the discount rate and applies that against historic cash flow. The platform also provides paying subscribers with three additional alternative valuation models, including a multiple of revenue, a multiple of EBITDA and a multiple of EBOC.