Multiples valuation

A method of business valuation which is based on:

(i) a relevant measure; and

(ii) the ratio of value to that measure for a comparable business (or a comparable group of businesses).

The most widely used financial measure for this purpose for a mature business is accounting earnings.

For other types of businesses, relevant measures might include - for example - turnover, or numbers of subscribers.

In simple terms, a lower multiple would indicate one or more of:

• weaker future growth prospects
• higher risk
• lower asset quality
• poorer management
• possible undervaluation

Higher multiples would suggest better growth propsects, lower risk, better asset quality, better management or possible overvaluation.

See also

• Earnings
• Price to earnings ratio
• EBITDA multiple
• Shareholder value
• Value driver