Thank you for your question.

When I was first learning valuation techniques I remember reading that using a range of 8X-14X EBIT is a pretty safe estimate and will get you pretty close to the actual intrinsic value. Only very exceptional companies should be valued at 14X EBIT and above in my opinion.

I lowered the range to 5X EBIT just to be extra cautious since I am a very conservative investor.

I am still learning how to gauge a companies prospects, competitive advantages, etc. Now that I know a bit more, after I do all my valuations I pick the estimate that I think is closest to the companies intrinsic value instead of using the range.

I judge which estimate to pick off of the following: What I think about management, any competitive advantages the company might have, its margins, my judgement from previous experience, etc.

If you are interested in learning more about valuation I would recommend these books whose links can be found on the Recommended Reading page above.

The Intelligent Investor
Margin of Safety
Value Investing: From Graham, To Buffett, and Beyond.

I would also recommend emailing John at csinvesting.wordpress.com to get access to his free Value Vault that has Margin of Safety and The Intelligent Investor along with hundreds of other free books about valuation and investing.

The Value Vault also has Bruce Greenwalds lecture notes and videos from Columbia Business School that teaches valuation as well, which I highly recommend.

I really would like this site to become a learning resource for new and experienced investors, along with a valuation and analysis site so I hope the above answered your question and feel free to ask any others you might have.

Thanks again for taking the time to ask your question.