Friday, February 07, 2014

Blog Series - Business Valuation - Multiples

One of the most common methods of business valuation is using valuation multiples.

What are Valuation Multiples

A factor wherein a value or price serves as the numerator and financial, operating or physical data of the company being valued serve as the denominator.

What is Valuation using Multiples

Valuation using multiples or relative valuation is a method of estimating the value of an asset by comparing it to the values assessed by the market for similar or comparable assets.

The process consists of:
  • identifying comparable assets (the peer group) and obtaining market values for these assets.
  • converting these market values into standardized values relative to a key statistic, since the absolute prices cannot be compared. This process of standardizing creates valuation multiples.
  • applying the valuation multiple to the key statistic of the asset being valued, controlling for any differences between asset and the peer group that might affect the multiple.

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