Specialist valuations for Australian manufacturing and engineering businesses.

A manufacturing business valuation must weigh maintainable earnings against the market value of net assets and conclude at whichever position the evidence best defends. Prismi values Australian manufacturers for sales, succession, restructures and CGT purposes — capitalising EBIT because depreciation approximates real replacement capex, cross-checking against net assets with market plant appraisals, and analysing order book, capacity utilisation and customer concentration.

When a manufacturing business needs a formal valuation

Manufacturers reach a valuation event through the same doors as any established business — a sale or exit, succession to the next generation, a shareholder entering or leaving, a restructure under Subdiv 328-G, a small business CGT concession claim, or a Division 7A issue where assets have moved between related entities. What is different is what the valuer finds on arrival. A manufacturer holds real assets: plant on the floor, inventory in the racks, sometimes the factory itself. That forces the question generic valuation pages skip — is this business worth its earnings, or its net assets? The two answers can sit far apart, and which one the evidence supports changes the sale price, the tax position and the negotiation. The valuation must run both and conclude at the most supportable position, not default to an earnings multiple because that is what the template does.

Why EBIT beats EBITDA when the machines are real

EBITDA multiples are the common currency of business sales, and for asset-light businesses they work. For a manufacturer they flatter the earnings. Depreciation in a manufacturing profit and loss is not an accounting fiction — it approximates the real, recurring capital expenditure required to keep plant productive and competitive. Capitalising EBITDA prices the business as if that cost did not exist. Prismi's manufacturing valuations use EBIT as the maintainable earnings base, or EBITDA less a normalised replacement capex allowance where accelerated tax write-offs have distorted the book depreciation charge. The second discipline is the net asset cross-check. Written-down book values for plant are frequently unreliable in both directions — instant asset write-offs push them below market, while obsolete lines can sit above it. The cross-check is built on market appraisals of plant and equipment where they exist, or documented desktop estimates where they do not. Where capitalised earnings fall below the market value of net assets, an earnings-based conclusion is not supportable, and the report says so.

The order book is evidence; the quoted pipeline is not

Forward revenue visibility separates a supportable manufacturing valuation from a hopeful one. Confirmed purchase orders and contracted supply agreements are evidence of maintainable revenue. A quoted pipeline is a conversation — quotes convert at rates that vary widely between manufacturers, and a pipeline figure without conversion history proves little. The valuation weights the two very differently and documents the historical quote-to-order conversion rate where the file supports it. Capacity tells the other half of the story. Actual utilisation measured against nameplate capacity shows whether the earnings being capitalised can grow without new capital. A plant running near capacity cannot lift output without capex the multiple must absorb; a plant running well below capacity has operating leverage, but a buyer will only pay for it with demand evidence attached. Both situations change the supportable range, and both belong in the report rather than in the sale negotiation six months later.

Customer concentration, imported inputs and energy costs

Normalised earnings for a manufacturer have to survive three specific stress tests. Key-customer concentration first: where a single customer accounts for a large share of revenue, the risk sits in the multiple or discount rate, and the contract terms, tenure and re-tender history are documented in the working file. Imported inputs second: manufacturers buying raw materials or components offshore carry margin exposure to the exchange rate, so normalisation asks whether recent margins reflect a favourable or unfavourable currency period, and whether hedging is in place and transferable. Energy third: for energy-intensive processes, a step-change in electricity or gas costs at contract renewal can move margins materially. Where the current supply contract expires inside the forecast period, maintainable earnings should reflect the go-forward cost, not the historical one. None of these adjustments is exotic — but a valuation that capitalises last year's margin without testing them is not evidence-led, and a sceptical reviewer will find the gap.

Inventory, surplus assets and the value that sits outside the earnings

Inventory is tested against AASB 102 — the lower of cost and net realisable value — with specific attention to slow-moving and obsolete stock. An aged inventory listing is one of the most informative documents in a manufacturing engagement: raw materials bought for a discontinued line, finished goods that have not moved in eighteen months, and spare parts for retired machines all sit in the stock figure until someone tests them. Surplus assets are the other adjustment generic valuations miss. Owned premises and idle plant are not part of the trading business. Where the entity owns its factory, the valuation charges a market rent against earnings, values the trading business on that basis, and adds the premises back separately at market value — usually supported by a property valuation. Idle plant the business does not need to generate its earnings is treated the same way. Folding surplus assets into an earnings multiple either buries their value or double-counts it; separating them is basic discipline.

What the valuation file needs from you

• ·Three to five years of financial statements and tax returns, plus interim accounts to a recent date
• ·Fixed asset register showing acquisition dates, cost and written-down values
• ·Recent market appraisals of major plant and equipment, where they exist
• ·Confirmed order book and contracted supply agreements, and the quoted pipeline with conversion history
• ·Aged inventory listing identifying slow-moving and obsolete lines
• ·Customer concentration analysis — top ten customers by revenue over three years
• ·Energy and key input supply contracts, with expiry dates
• ·Premises details — lease terms, or ownership evidence and any market rent appraisal if the entity owns the factory

Which engagement tier fits a manufacturer

Most manufacturing engagements land at Comprehensive (from $3,995 + GST, 15–25 business days), which covers the EBIT-based earnings analysis, the net asset cross-check and the normalisation work described above. Essential (from $1,495 + GST, 10–14 business days) suits smaller owner-operated workshops where plant is modest and the earnings question is straightforward. The Defensible Valuation File (from $8,995 + GST, 25–35 business days) is the right tier where the number will be scrutinised — a small business CGT concession claim, a family law property pool, a related-party restructure or a shareholder dispute — and where coordination with an independent plant and machinery appraisal is warranted. Where the question is strategic rather than transactional — sell now, or invest in capacity first — the Valuation Range & Scenario Review is the premium engagement. Retrospective valuations add $495 per historical date, additional entities are $750 each, and rush delivery is +30% of the base fee subject to capacity. All work is prepared under APES 225, senior-reviewer signed, with the working file retained for ten years. Fees are fixed at engagement and never contingent on the outcome.