How it works
Common multiples are EV/EBITDA, EV/Sales, price-to-earnings (P/E) and price-to-book (P/B). Enterprise multiples such as EV/EBITDA are used for whole businesses. Equity multiples such as P/E are used for shares.
To value a business with multiples, find comparable companies, calculate their multiples, take a typical value such as the median, and apply it to your business's normalised metric. Adjust for differences in growth, margins, size and country.
EV/EBITDA = Enterprise value ÷ EBITDA
P/E = Share price ÷ Earnings per share
A simple example
How it is used
- Valuing companies quickly.
- Cross-checking a DCF.
- Setting a price range for a sale or an investment.
Common mistakes
- Choosing comparables that are not truly similar.
- Mixing trailing and forward multiples.
- Applying a public-company multiple to a small private company without adjusting.
- Using multiples from another country without allowing for differences in growth and risk.
Questions
What is a good EV/EBITDA multiple?
There is no universal answer. It depends on industry, growth, risk and country. Compare with similar companies. Industry averages from Damodaran are a useful reference.
What is the difference between trailing and forward multiples?
Trailing multiples use the last twelve months of results. Forward multiples use expected results for the next year or two.
Keep learning
- What is enterprise value?
- What is EBITDA?
- What is a DCF (discounted cash flow)?
- Guide: Business valuation
- Damodaran: EV/EBITDA multiples by sector
- Damodaran: PE ratios by sector
- Damodaran: price to book by sector
- Glossary: Valuation multiple
- Glossary: EV/EBITDA
- Glossary: Price-to-earnings ratio (P/E)
- Glossary: Comparable company analysis (comps)
- Glossary: Precedent transactions