Valuation Multiples Explained

Business Valuation Multiples are ratios that relate the business value to some measure of its financial performance.

These ratios are statistically derived from sales of similar companies. Some of the more common valuation multiples are:

• Business price to gross revenue or net sales.
• Business price to net income.
• Business price to EBIT, EBITDA or EBT.
• Business price to seller’s discretionary earnings or net cash flow.
• Business price to total asset value.
• Business price to owners’ book value of equity.

You can select any number of valuation multiples to determine the value of a company.

For example, to calculate the business value based on its gross revenue:

1. Take the price to gross revenue multiple.
2. Multiply it by the current business revenue.

The result is the business value estimate.

ValuAdder Market Comps tool gives you a set of valuation multiples derived from comparable business sales by industry sector.

Each sector is identified by its SIC (Standard Industrial Classification) and NAICS (North American Industrial Classification System) codes.