Asset based valuation is not usually practical for restaurant valuation because food establishment is usually measured by the clientele it attracts, the quality and creativity of its kitchen staff and the management. Restaurant assets such as dining room tables and kitchen equipment usually have low liquidation value. In addition, perishable items such as food have low inventory value. However, an extensive wine collection of a French restaurant can be a valuable inventory. For franchise operations, intangibles - - trade names - - of popular establishments such as Hard Rock Café or Pizza Hut can be valuable assets. The valuation is measured as:

Because it accounts only for past history and not for future performance, this method is best used for franchise restaurant businesses which usually have steady growth potential in earnings. The price of a franchise restaurant is equal to its current annual income capitalized with (divided by) a capitalization rate ranging from 9% for well-known franchised operations such as McDonald’s or Burger King to 11% for a lessor known chain food operation.

This is the most comprehensive method and it is based on the premise that the present worth of the business is the present value of all net free cash flows that the establishment will generate over its expected life.

This is the most frequently used method in the restaurant business where the value of the restaurant is derived from using an "industry average" sales figure as a multiplier. Sometimes, appropriate adjustments need to be made such as location of the business, the equipment age and the arm’s length transaction. Although this valuation formula is simplistic, it is widely used. For example,

(brand new equipment) 60% percent of annual gross revenues

(no franchises) 40% percent of annual gross revenues

1. Fee simple ownership: if the real estate is part of the sale, the purchaser should obtain from the local tax assessor’s office all previous property appraisals to gain some ideas of potential future increase in value. Alternative uses of the real estate based on existing zoning regulation should also be considered.

2. Leased fee interest: if the real estate is leased, the purchaser should carefully look at the remaining terms of the lease and find out the cost to renew it. Restaurants should have a minimum of 10 years remaining on its lease with an option for another 10 years. In certain instances, if the lease is long term (above 10 years) and below market rate, and the business is located in a heavy pedestrian traffic area, then the purchaser may turn around and sell the lease at a substantial profit to a national chain food. This is the case when the lease is worth more than the restaurant itself.