Brief Definition
A multiple is a way of comparing different companies or investments based on financial metrics. It is used to determine their relative value and potential for growth. Common multiples include the price-to-earnings (P/E) multiple, price-to-sales (P/S) multiple, and enterprise value-to-EBITDA (EV/EBITDA) multiple.
Further Explanation
Multiple is a term used in finance and investing to refer to a ratio or value that is used to compare different companies or investments. The term is often used in the context of valuation, where multiples are used to determine the relative value of a company or investment based on various financial metrics.
For example, a common multiple used in finance is the price-to-earnings (P/E) multiple, which is calculated by dividing a company’s stock price by its earnings per share (EPS). The resulting ratio provides an indication of how much investors are willing to pay for each dollar of earnings generated by the company.
Other common multiples used in finance include price-to-sales (P/S) multiples, which compare a company’s stock price to its revenue per share, and enterprise value-to-EBITDA (EV/EBITDA) multiples, which compare a company’s enterprise value (market capitalization plus debt minus cash) to its earnings before interest, taxes, depreciation, and amortization (EBITDA).
Overall, multiples are an important tool for investors and analysts to compare different companies or investments based on key financial metrics, and to evaluate their relative value and potential for growth.