The investor’s field guide · V
Valuation multiple
A ratio expressing a business value as a multiple of a specified earnings, revenue or other financial measure.
Explained by the editorial team
A valuation multiple relates a price to a financial measure. A multiple of EBITDA is different from a multiple of revenue or net profit. The measure, time period and definition of value must all match before comparisons are useful.
A worked example
An illustrative enterprise value of £600,000 divided by annual EBITDA of £150,000 gives a multiple of four. That is arithmetic, not evidence that four is the right price. Debt, cash and agreed working capital adjustments may change what shareholders actually receive.
What to examine
Ask whether the earnings are historic, forecast or adjusted. Examine customer concentration, management dependence, investment needs and the quality of the underlying cash flow. A lower multiple can reflect greater uncertainty rather than a bargain. A quoted market comparison may also involve a much larger or structurally different business. Treat the multiple as a compact expression of assumptions that still need to be tested.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.