So, a simple profit divided by price equation isn’t going to really give an indication of the actual return. Many missed opportunities and many wasted valuable time and money simply sorting on Return. Buyers should investigate the total funds needed to be invested to operate a business at its normal trading level.
Invariably, the total funds needed to be invested may include tangible assets, goodwill, stock, working capital and work in progress. When added together and compared with the profit levels being achieved, the real return on investment (ROI) becomes apparent. It may or may not look as good as it did with a straight price/profit calculation.
Return on the total funds to be invested to operate the business normally is the key point a business buyer has to decide upon. The decision will reflect the tolerance for business risk of the business buyer. Some will pay more and move quickly to acquire a business opportunity at hand. Some will pay less, and may miss the opportunity. Some will still be analysing the business and never make the decision to buy it otherwise.
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