Valuation Multiples

16730 Words67 Pages
Valuation & Accounting


November 2001

Valuation Multiples: A Primer

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Valuation Primer Series
Peter Suozzo
+852-2971 6121


Stephen Cooper
+44-20-7568 1962


Issue 1

This is the first in a series of primers on fundamental valuation topics such as discounted cash flow, valuation multiples and cost of capital.
This document explains how to calculate and use
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We explain how multiples are calculated and discuss the different variations that can be employed. We discuss the differences between equity and enterprise multiples, show how target or ‘fair’ multiples can be derived from underlying value drivers, and discuss the ways multiples can be used in valuation. For each multiple, we show its calculation and derivation from underlying DCF fundamentals, discuss its strengths and weaknesses, and suggest appropriate use.
This document will be maintained online and any changes will be posted to our website at

What Is a Multiple?
A valuation multiple is simply an expression of market value relative to a key statistic that is assumed to relate to that value. To be useful, that statistic – whether earnings, cash flow or some other measure – must bear a logical relationship to the market value observed; to be seen, in fact, as the driver of that market value.
Two basic types: enterprise

There are two basic types of multiple – enterprise value and equity:

and equity multiples s s

Enterprise multiples e xpress the value of an entire enterprise – the value of all claims on a business – relative to a statistic that relates to the entire enterprise, such as sales or EBIT.
Equity multiples, by contrast, express the value of shareholders’ claims on the assets and cash flow of the business. An equity multiple therefore expresses the value of this claim relative
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