Multiples valuation: Difference between revisions
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imported>Doug Williamson m (Spacing 22/8/13) |
imported>Doug Williamson (Expand to explain significance of lower or higher multiples.) |
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For other types of businesses, relevant measures might include - for example - turnover, or numbers of subscribers. | 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 | |||
*possible undervaluation | |||
Higher multiples would suggest better growth propsects, lower risk, worse asset quality or possible overvaluation. | |||
Revision as of 08:16, 14 April 2015
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).
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
- possible undervaluation
Higher multiples would suggest better growth propsects, lower risk, worse asset quality or possible overvaluation.
