Security/Website Valuation Explained
Bond yields are a little fucked up right now (thanks, credit crunch), but they provide a way to figure out an investment’s valuation.Let’s assume the 1-year government bond yield is at 5% (it’s not, but it simplifies the math, so bear with me). As a gross oversimplification, that means that a $20 investment today will produce a risk-free return of 5% ($1) at the end of a year. The converse is also true: if a risk-free investment produces $1 in revenues over the course of a year, then the investment should be valued at $20.
So, if your website was risk-free, it’d be valued at ~20x your yearly earnings (after-tax net profit).
Of course, it’s not risk-free, so that will discount the price.
On the flip-side, it has potential for growth, so that will increase the price.
Source: jorgeortiz85 at Hacker News
