steps here. Determine evaluation of the firm. The firms have the potential to create profit. They're this black box and they spit out their golden eggs. And so because they can generate profit, they do have an economic value in the marketplace or to just internal shareholders. That value is held by the owners of the firm. So determining a valuation of your firm is very important. And I cite a couple of ways to do this. One is by appraisal, by professional business appraisal. If you do do that and it's one way to do it. Indeed, I strongly advocate that you use a business appraiser who is specific in the design firm industry. A lot of them will say, oh, any firm, yeah, I know how to do this, I'll evaluate. Go stay within the industry. I have a comment here. ESOPs, which, I think was talked about in this room just prior to this session. We don't know anything about ESOPs. We have avoided ESOPs because our maybe not totally well thought out impression of it is that ESOPs take ownership and spread it too thin. What we want to do is we want to take the entrepreneurial type of people in our firm who are working hard to create value to build our firm and concentrate ownership more heavily on those people and not spread it out to folks who are just good serving employees. There are valuation, ratios available in the industry and Zweig Group has excellent ratios. And we subscribe to Zweig's ratios. More on that in a second. But they do some continuous ended research. Is Tracy Eaves in? Okay, all right. She can say it very efficiently about how they put all this research to understand the ratios of value to the firm's metrics. So they Zweig. I'm not intending to shill for Zweig, although I'm very happy to. But we subscribe to Zweig's program every year we get their valuation report which has a number of ratios for valuing your firm. So here's how that looks. The Zweig has a lot of different categories of valuation. The Z3 value they publish is for internal transitions of firms. They've done a lot of research on different firms' internal transition valuations. They've come up with a value per full-time equivalent employee per FTE of $96,000. By the way. We get their report every year and boy, that has grown from about $52,000 to $96,000 in 20 years. The value per net service revenue is 63%. Somebody is doing $10 million a year. Well, then their firm is probably worth $6.3 million. The value per backlog is 58%. The value per earnings before interest, taxes, depreciation, and amortization is four times. And the value per profit is 3.8. And the value per book value is 1.8. Four times the book value. Each one of those criteria represents a total firm value. they don't interact with each other, but each one is an indicator of what this firm is perhaps worth. And so you average these things. We don't use all of these. We don't bother to track backlog. And we'll go with EBITDA rather than profit. So those are not highlighted. The four that are highlighted are what we use. This is how the computation works. Down the left are those valuation metrics. And then in the next column are those ratios that we've just talked through. And then I have made up a firm out of the thinnest possible Air. And I've said, you know what, this firm has 45 people in it. And so the number of people in the firm, you multiply that times the 96,000 and this firm is worth four points, what is it? $328 million. 308, yeah. $328 million. The net service revenue. This is a firm that did
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