Bloomberg columnist Matt Levine (pictured below) says "One extremely crude but sometimes useful rule of thumb is that a business is worth about 10 times as much as it made this year. If you have a hardware store or a dental practice or a newsletter and it made a profit $1 million this year, and you want to sell it to someone else, they should pay you about $10 million for it."
Levine immediately retracts this statement, noting that business valuation is a complex issue, which prompts fundamental questions like how fast is the business growing, and what do its long-term prospects look like?
He also notes that the term "profit" is a bit squishy. "What do I even mean by "made $1 million": Is that net income, or revenue, or EBITDA (earnings before interest, taxes, depreciation and amortisation), or some other measure of earnings? A business is worth the value of all of its expected future cash flows, discounted back to present value at some appropriate cost of capital. Sometimes, the growth rate and discount rate will work out such that that number will turn out to be roughly 10 times this year's earnings, but of course it could be much more or much less."
Anyway, I have a different rule. According to me, a business is worth about 10 times as much as it will make in one of the full calendar years that lie ahead. That makes more sense, because it is forward looking.
I apply this equation backwards to sound clever when discussing stocks, because I generally know their current share prices. For example, Amazon trades around $175 per share, so I can breezily say that in my view, Amazon will make a profit of around $17.50 sometime soon. Maybe in 2026.