Here's a tricky question. You want to buy a company, but how much should you pay?
If you were on the stock market, you should not pay more than the market price. But small companies are not on a stock exchange, you have to value it otherwise.
The most obvious method would be to compare with recent transactions. Your benchmark should be in the same industry, preferably with similar size and structure. Addressing same markets.
When you have the numbers, you should compare the sizes. You will be interested in the size of balance sheet, debt, revenue and operating profit. You will want to know how much are they growing year over year.
Companies are often sold with a multiple to EBITDA or EBIT. Think single digits multiple. There is academic debate whether EBITDA, EBITA or EBIT is the most accurate measure, but it is not a deal-breaker. You just have to be consistent.
Very important consideration is debt. If you are paying for a company, you shouldn't pay for their debts twice. Either let previous owner settle them with his proceeds or subtract their value from you estimate.
If a company isn't yet profitable - startup - or if it is in the SaaS industry, the most common measure is based on revenue. Recurring revenue based services are usually valued at low single digit multiple, promising startups are valued a lot higher.
Is it the most scientific method to value a company? Not particularly. Is it useful? Damn right it is, to the point where it is one of the main or maybe the main method used in the business.