There are many many multiples that investment bankers use to value a company. However the 3 most common used are: number 1 - a revenue multiple. A revenue multiple is nothing but the equity value of the company divided by the revenue of the company. This is most commonly used in case of companies that are not profitable, especially companies that are in the early stage start-ups, specifically in the technology industry revenue multiples are used to value the company.
Nov 01 2013 11:22 AM
The second common multiple that is used is what is called a PE multiple or a price to earnings multiple. This is nothing but its multiple based on the net income of the company. It is the equity value of the company divided by the net income. This is typically used in cases where a company has been profitable for 2-3 years. So, that is a track requirement predictable profitability term in which case the PE multiple is used. Typically a PE multiple is used to value companies that are publicly listed, or slightly more mature companies.
A third multiple that is used to value companies is the EBITDA multiple, which is nothing but the valuation of a company divided by the EBITDA or sometimes called the operating profit. This valuation basically tells you how many times the company's operating profit is the valuation of a company. Again this is typically used for companies that are slightly more mature and have their existence for a few years and have some track record of operating profitability.