Definition - What does Multiple mean?
A multiple or "multiplier" is applied to a specific financial metric of a company to calculate the business' valuation or assess its reasonability. The most common financial metrics that multiples are applied to include:
- Net Earnings
If a multiple is applied to a pre-debt number, like EBITDA, EBIT or Revenue, the resulting valuation is the estimated enterprise value. If the multiple is applies to an after debt number, such as net earnings, the resulting valuation is the estimated equity value. A multiple is referred to as "4 times", "4x" or "4 turns", as an example, which would refer to EBITDA being multiplied times 4 to yield the estimated valuation of a company.
Divestopedia explains Multiple
Multiples used to value private businesses are sometimes derived from the public marketplace under two scenarios:
- Valuations that are implied by public companies; and
- Valuations that are disclosed from M&A activity.