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. | ||
Revision as of 09:47, 30 October 2016
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
- possible undervaluation
Higher multiples would suggest better growth propsects, lower risk, better asset quality, or possible overvaluation.
