Enter the annual cash flow, required rate of return, and growth rate of the cash flow into the calculator to determine the partnership valuation.
Partnership Valuation Formula
The following formula is used to calculate the partnership valuation.
PV = (CF / (r - g))
Variables:
- PV is the partnership valuation ($)
- CF is the annual cash flow generated by the partnership ($)
- r is the required rate of return (decimal)
- g is the growth rate of the cash flow (decimal)
To calculate the partnership valuation, divide the annual cash flow generated by the partnership by the difference between the required rate of return and the growth rate of the cash flow.
What is a Partnership Valuation?
Partnership valuation is the process of determining the economic value of a business partnership. This involves assessing the financial performance, assets, liabilities, and potential growth of the partnership. The valuation is often conducted when a partner is looking to sell their stake, during a merger or acquisition, or in the event of a legal dispute. The valuation provides a basis for negotiation and decision-making, ensuring that all partners are treated fairly.
How to Calculate Partnership Valuation?
The following steps outline how to calculate the Partnership Valuation.
- First, determine the annual cash flow generated by the partnership ($).
- Next, determine the required rate of return (r) as a decimal.
- Next, determine the growth rate of the cash flow (g) as a decimal.
- Next, gather the formula from above = PV = CF / (r - g).
- Finally, calculate the Partnership Valuation.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
partnership valuation ($) = 5000
annual cash flow generated by the partnership ($) = 1000
required rate of return (r) = 0.1
growth rate of the cash flow (g) = 0.05
