Multiples valuation: Difference between revisions

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A method of business valuation which is based on a relevant measure and the ratio of value to that measure for a comparable business (or a comparable group of businesses).
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.
The most widely used financial measure for this purpose for a mature business is accounting earnings.
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*higher risk
*higher risk
*lower asset quality
*lower asset quality
*poorer management
*possible undervaluation
*possible undervaluation




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




== See also ==
== See also ==
* [[Correction]]
* [[Earnings]]
* [[Earnings]]
* [[Earnings multiples]]
* [[EBITDA multiple]]
* [[Price to earnings ratio]]
* [[Price to earnings ratio]]
* [[EBITDA multiple]]
* [[Shareholder value]]
 
* [[Value driver]]


===Other links===
[[Category:The_business_context]]
* [[File:2.6.1a-Primer-on-Valuation-Multiples-UBS-MAR12.pdf|Valuation multiples by UBS]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Financial_products_and_markets]]

Latest revision as of 23:30, 30 December 2020

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