Swiss Valuation Glossary
The definitive reference for Swiss business valuation terminology. Each term is defined with specific numbers, Swiss legal references, and practical M&A context. From the Praktikermethode to indirect partial liquidation, this glossary covers the complete vocabulary needed to navigate Swiss SME transactions.
42 terms shown
Valuation Methods
- Practitioner's Method (Praktikermethode)
- The standard Swiss SME valuation methodology endorsed by Tax Circular No. 28. It calculates enterprise value as (2 x Earnings Value + 1 x Net Asset Value) / 3. Over 90% of Swiss fiduciary valuations use this formula as the baseline, making it the inescapable reference for both fiscal and commercial discussions.
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- Discounted Cash Flow (DCF)
- A valuation method that estimates enterprise value by discounting projected future free cash flows to their present value using a weighted average cost of capital (WACC). Terminal value typically accounts for 60-80% of the total DCF valuation. Preferred for high-growth companies and startups but often viewed with skepticism for stable Swiss SMEs due to sensitivity to assumptions.
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- Revenue Multiples
- A valuation approach that derives enterprise value as a multiple of annual revenue. Commonly used for SaaS and high-growth companies where EBITDA may be negative. Swiss SaaS companies trade at 3-8x revenue multiples, while traditional manufacturing typically falls below 1x. Less reliable than EBITDA multiples for profitable businesses.
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- EBITDA Multiple
- The most widely used valuation metric in Swiss M&A transactions. Enterprise Value is calculated as EBITDA multiplied by an industry-specific factor. Swiss SME deal multiples typically range from 4x to 8x EBITDA, while statutory (Praktikermethode) multiples range from 3x to 6x. The spread between these two creates the arbitrage gap.
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- Comparable Transactions Method
- A market-based valuation approach that derives value from actual M&A transaction data in the same industry. In Switzerland, Dealsuite DACH provides the primary transaction database with over 2,500 recorded deals. This method is considered the most reliable indicator of actual market prices but requires sufficient comparable deal flow.
- Weighted Average Method
- A valuation approach that combines multiple methods by assigning weights to each. The Swiss Praktikermethode is itself a weighted average (2:1 earnings-to-assets). In practice, advisors often weight the Praktikermethode at 40%, DCF at 30%, and market multiples at 30% to triangulate a defensible valuation range.
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- Asset-Based Valuation (Substanzwertmethode)
- Valuation method that calculates enterprise value based on the fair market value of all assets minus liabilities. In the Swiss Praktikermethode formula, it carries a 1/3 weighting. Critical for asset-heavy industries like real estate and manufacturing where hidden reserves in property and machinery can exceed 40% of book value.
- Earnings Value Method (Ertragswertmethode)
- Valuation method that capitalizes the sustainable normalized net profit at a defined capitalization rate. In the Praktikermethode, it carries a 2/3 weighting. The Swiss Federal Tax Administration publishes annual capitalization rates (e.g., 8.75% for 2024). Commercial transactions typically apply higher rates of 10-15% to account for illiquidity and operational risk.
Financial Metrics
- EBITDA
- Earnings Before Interest, Taxes, Depreciation, and Amortization. The primary profitability metric used in Swiss M&A as a proxy for operating cash generation. Swiss SME EBITDA margins typically range from 8% (services) to 25% (niche manufacturing). EBITDA strips out capital structure and accounting policy differences, enabling cross-company comparison.
- Normalized EBITDA
- EBITDA adjusted for non-recurring items, owner perquisites, above-market salaries, and one-off expenses to reflect true sustainable earnings. In Swiss SMEs, normalization adjustments average CHF 200,000-500,000 per year and can increase the stated EBITDA by 30-80%. This is the starting point for any credible M&A valuation.
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- Free Cash Flow (FCF)
- Cash generated by operations minus capital expenditures required to maintain or expand the asset base. FCF represents the cash available for distribution to shareholders and debt holders. It is the foundation of DCF valuation. Healthy Swiss SMEs typically convert 60-80% of EBITDA to free cash flow.
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- Enterprise Value (EV)
- The total value of a business including both equity and net debt (interest-bearing debt minus cash). Enterprise Value = Equity Value + Net Debt. In Swiss M&A, EV is the standard reference for quoting deal multiples because it is capital-structure neutral. A company with CHF 5M EBITDA at 6x trades at CHF 30M EV.
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- Equity Value
- The value of ownership interest in a business, calculated as Enterprise Value minus net debt. This is the amount a seller actually receives at closing after debt repayment. In a debt-free Swiss SME, Equity Value equals Enterprise Value. For leveraged companies, Equity Value can be 20-40% lower than EV.
- Working Capital
- Current assets minus current liabilities, representing the short-term operating liquidity of a business. In Swiss M&A, deals are typically priced on a 'normalized working capital' basis. Any excess or deficit at closing triggers a price adjustment. Manufacturing SMEs typically require working capital equal to 15-25% of revenue.
- Revenue (Turnover)
- Total income generated from the sale of goods or services before any expenses are deducted. Swiss SMEs report revenue under the Swiss Code of Obligations (OR) accounting standards. For valuation purposes, revenue quality matters more than quantity — recurring revenue from long-term contracts commands 20-30% higher multiples than project-based revenue.
- EBIT (Operating Profit)
- Earnings Before Interest and Taxes, also known as operating profit. Unlike EBITDA, EBIT includes depreciation and amortization charges, making it more conservative for asset-heavy businesses. In Swiss manufacturing, EBIT is typically 3-8 percentage points lower than EBITDA due to significant capital expenditure requirements.
- Goodwill
- The excess of purchase price over the fair market value of identifiable net assets in an acquisition. Under Swiss GAAP FER 30, goodwill can be capitalized and amortized over a maximum of 20 years, or offset directly against equity. In Swiss SME transactions, goodwill typically represents 40-70% of the total purchase price.
Swiss-Specific Concepts
- Hidden Reserves (Stille Reserven)
- Undisclosed value embedded in Swiss company balance sheets due to conservative accounting under the Code of Obligations (OR). Assets are often carried below fair market value — machinery at CHF 1 (fully depreciated), real estate at historical cost, inventory at conservative valuations. In Swiss SMEs, hidden reserves typically add 20-60% to the statutory book value.
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- Tax Circular No. 28 (Kreisschreiben Nr. 28)
- The binding directive issued by the Swiss Tax Conference (SSK/CSI) that standardizes the valuation of unlisted securities for wealth tax purposes. It mandates the Praktikermethode formula and publishes annual capitalization rates. Tax Circular 28 is the single most referenced document in Swiss SME valuation and the legal foundation for fiscal asset valuations across all 26 cantons.
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- Forensic Normalization
- The systematic process of adjusting a Swiss SME's financial statements to reveal true economic performance obscured by years of tax optimization. Adjustments include reversing excessive depreciation, eliminating owner perquisites, normalizing family salaries to market rates, and unwinding aggressive provisions. Typically increases stated EBITDA by 30-80% for owner-managed businesses.
- Arbitrage Gap
- The systematic spread between the conservative statutory valuation (Praktikermethode with tax-optimized inputs) and the deal-based market valuation (normalized EBITDA x transaction multiples). This gap averages 30-50% across Swiss SME sectors and represents the hidden value that forensic normalization can unlock. High-gap sectors include precision manufacturing and medtech.
- Art. 725b CO (Over-Indebtedness)
- The Swiss Code of Obligations article governing over-indebtedness (Ueberschuldung). Effective since January 2023 under the revised company law, it requires the Board of Directors to notify the court if both the interim balance sheet at going-concern and liquidation values show excess liabilities over assets. Directors face personal liability under Art. 52 AHVG for failure to act.
- Code of Obligations (OR)
- The primary Swiss federal law governing corporate law, accounting standards, and commercial contracts. The OR (Obligationenrecht) defines Swiss accounting rules that allow conservative balance sheet management, including the creation of hidden reserves. Articles 957-963 establish the accounting framework; Articles 620-763 govern the corporation (AG/SA). Revised January 2023.
- EXPERTsuisse
- The Swiss Expert Association for Audit, Tax, and Fiduciary, representing over 10,000 certified public accountants and fiduciary professionals. EXPERTsuisse publishes the authoritative valuation guidelines used by Swiss auditors and tax authorities, including the methodology standards referenced in Kreisschreiben Nr. 28.
- Substance Value (Substanzwert)
- The net asset value of a company after revaluing all assets and liabilities to their fair market value, including hidden reserves. In the Praktikermethode, the Substanzwert carries a 1/3 weighting. For asset-light service companies, Substanzwert is minimal; for real estate-holding companies, it can represent 80%+ of total enterprise value.
M&A Process
- Due Diligence
- The comprehensive investigation of a target company's financial, legal, tax, operational, and commercial affairs prior to acquisition. In Swiss M&A, the due diligence phase typically lasts 4-8 weeks and involves a team of lawyers, auditors, and sector specialists accessing a virtual data room. Findings directly impact final price through warranty adjustments.
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- Vendor Due Diligence (VDD)
- A pre-sale due diligence investigation commissioned by the seller to identify and address issues before going to market. VDD typically costs CHF 50,000-150,000 for a Swiss SME but can increase sale price by 10-20% by reducing buyer risk perception and accelerating the transaction timeline from 12 months to 6-8 months.
- Quality of Earnings (QoE)
- A specialized financial analysis that assesses the sustainability and reliability of a company's reported earnings. QoE distinguishes between recurring operating income and one-time items, identifies aggressive accounting practices, and calculates the normalized EBITDA that forms the basis for pricing. In Swiss SME deals, QoE adjustments average 15-40% of reported EBITDA.
- Asset Deal
- An acquisition structure where the buyer purchases specific assets and assumes specific liabilities rather than buying shares. In Switzerland, asset deals represent approximately 30% of SME transactions. Buyers prefer asset deals to cherry-pick valuable assets and avoid unknown liabilities. However, asset deals trigger asset transfer taxes and may require contract reassignment.
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- Earn-Out
- A contingent payment mechanism where a portion of the purchase price (typically 15-30%) is paid over 2-3 years based on the achievement of agreed financial targets (usually revenue or EBITDA milestones). Earn-outs bridge the valuation gap between buyer and seller expectations. In Swiss SME deals, earn-outs are used in approximately 40% of transactions.
- Management Buyout (MBO)
- A transaction in which the existing management team acquires the company from the current owner, often with significant leverage (debt financing). MBOs account for approximately 25% of Swiss SME succession transactions. Typically financed with 30-40% equity and 60-70% debt from Swiss cantonal or commercial banks. Preferred when external buyers threaten company culture.
- Letter of Intent (LOI)
- A non-binding preliminary agreement outlining the key terms of a proposed acquisition including indicative price, deal structure, timeline, and exclusivity period. In Swiss M&A practice, the LOI typically grants the buyer a 60-90 day exclusivity period for due diligence. While the price terms are non-binding, the confidentiality and exclusivity clauses are usually legally enforceable.
- Non-Disclosure Agreement (NDA)
- A legally binding contract establishing a confidential relationship between seller and potential buyer. In Swiss M&A, the NDA is the first document signed before any financial information is shared. Standard Swiss NDAs include a 2-3 year confidentiality period, non-solicitation of employees, and penalties for breach. Governed by Swiss law with Zurich or the seller's cantonal jurisdiction.
- Data Room (Virtual Data Room)
- A secure digital repository containing all confidential documents required for due diligence, including financial statements, contracts, employee records, IP documentation, and regulatory filings. In Swiss M&A, virtual data rooms typically contain 200-500 documents organized in 15-20 folders. Access is logged, watermarked, and controlled by the seller's advisor.
Tax & Succession
- Indirect Partial Liquidation (IPL)
- A Swiss tax risk triggered when a private individual sells shares to a corporate buyer who then extracts non-operating assets (typically excess cash or real estate) from the target within 5 years. The Swiss Federal Tax Administration can reclassify the tax-free capital gain as taxable dividend income. IPL risk is a critical deal-structuring consideration in every Swiss SME transaction.
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- Tax-Free Private Capital Gain
- Under Swiss federal tax law (Art. 16 para. 3 DBG), capital gains realized by private individuals on the sale of movable private assets — including company shares — are exempt from income tax. This is one of Switzerland's most significant tax advantages for entrepreneurs. However, this exemption is conditional: indirect partial liquidation, self-dealing, or reclassification as commercial activity can trigger full taxation.
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- Succession Planning (Nachfolgeplanung)
- The strategic process of preparing a business for ownership transition, whether to family members (Family Buy-Out), management (MBO), or external buyers (trade sale). In Switzerland, approximately 75,000 SMEs will face succession challenges by 2030. Best practice requires starting 3-5 years before the intended exit date with financial normalization, governance professionalization, and key-person risk mitigation.
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- Minority Discount
- A reduction applied to the per-share value of a minority stake (<50%) to reflect the lack of control over company decisions, dividend policy, and strategic direction. In Swiss valuation practice, minority discounts typically range from 15-25%. Combined with a liquidity discount, a minority stake in an unlisted Swiss SME can trade at 30-50% below proportional enterprise value.
- Liquidity Discount (Illiquidity Discount)
- A discount applied to the value of shares that cannot be easily traded on a public exchange. Unlisted Swiss SME shares are inherently illiquid — finding a buyer can take 12-24 months. Standard liquidity discounts in Swiss valuation practice range from 20-40%, depending on company size, sector attractiveness, and the depth of the buyer pool.
- Small Cap Discount (Size Discount)
- An additional discount applied to smaller companies (typically below CHF 5M EBITDA) to reflect higher risk from key-person dependency, limited diversification, weaker governance, and smaller buyer pools. In Swiss SME valuation, the small cap discount typically ranges from 10-25% and is applied on top of industry-standard multiples. Companies below CHF 1M EBITDA face the steepest discounts.
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Source: ValIndex analysis based on EXPERTsuisse standards, Swiss Tax Circular No. 28, Code of Obligations (OR), and institutional M&A practice. Updated February 2026.