Multiples valuation

From ACT Wiki
Jump to: navigation, search

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