Valuation and investment
Valuation multiple
Value as a multiple of a financial measure, based on similar companies.
Facts checked against sources onWhat does Valuation multiple mean?
A valuation multiple compares a company's value with a financial measure, such as EV/EBITDA or the price-to-earnings (P/E) ratio (share price divided by earnings per share). You value a company by applying the multiples of similar companies or recent deals. Choose peers with similar growth and risk, or the multiple will mislead.
Where does it come up in case interview prep?
- EBITDA versus operating profit versus free cash flowLesson in Reading a business through its numbers: the three statements, cash and value
- Valuation in practice: multiples, a simple DCF, NPV, IRR and paybackLesson in Reading a business through its numbers: the three statements, cash and value
- Using this in a case: what to ask, what to calculate, what to sayLesson in Reading a business through its numbers: the three statements, cash and value
- Mergers, acquisitions, and due diligenceLesson
- Private equity and venture capital: investor style casesLesson in The same acumen in other roles
- Stretch cases: profit to pricing, and entry to acquisitionLesson in Integrated multi-part cases
- How private equity and venture capital funds workLesson in Private equity and venture capital
- LBO returns and fund economicsLesson in Private equity and venture capital
Related terms
- Enterprise value (EV) and EV/EBITDAThe value of the whole business, to lenders and owners together.
- DCF (discounted cash flow)Valuing a business from the future cash it will generate.
- Return on investment (ROI)The gain from an investment relative to its cost.
- Payback periodHow long until an investment earns back its cost.
- Time value of moneyMoney today is worth more than the same money later.
- Discount rate and hurdle rateThe rate used to turn future cash into today's value.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
- Net present value (NPV)Today's value of all future cash flows, minus the upfront investment.
Learn it in context
See Valuation multiple at work in a lesson from Reading a business through its numbers: the three statements, cash and value, with checks as you go.
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