Multiple
A valuation ratio comparing price to a financial metric, such as revenue or EBITDA, used to value businesses.
Full Definition
A multiple is a valuation ratio that expresses the value of a business as a multiple of a financial metric. Multiples allow comparison between companies and provide a market-based approach to valuation.
Common valuation multiples:
- EV/EBITDA: Enterprise Value / EBITDA (most common)
- EV/Revenue: Enterprise Value / Revenue
- P/E: Price / Earnings (equity multiple)
- EV/EBIT: Enterprise Value / Operating Profit
Typical UK SME multiples:
- Micro businesses (<£1m revenue): 2-4x EBITDA
- Small businesses (£1-5m revenue): 3-5x EBITDA
- Medium businesses (£5-20m revenue): 4-7x EBITDA
- Larger mid-market (£20m+ revenue): 6-10x EBITDA
Factors affecting multiples:
- Size and scale
- Growth prospects
- Profit margins
- Recurring revenue
- Market position
- Management quality
- Sector dynamics
- Economic conditions
Using multiples correctly: 1. Select comparable companies/transactions 2. Ensure consistent definitions (adjusted EBITDA) 3. Consider control premiums vs minority discounts 4. Apply to appropriate financial metric 5. Cross-check with other valuation methods
Multiples provide useful benchmarks but should not be applied mechanically without considering company-specific factors.
Related Terms
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortisation – a key profitability metric used in valuations.
Enterprise Value
The total value of a business including both equity and debt, representing the price to acquire the entire entity.
Valuation
The process of determining the economic worth of a business for sale, investment, or other purposes.