- Valuation Multiples
- Equity Value vs Enterprise Value
- Trading Multiples
- Comparable Company Analysis
- Transaction Multiples
- (Price Earning Ratio (P/E)
- PE Ratio formula
- Price to Cash Flow (P/CF)
- Price to Book Value Ratio (P/B)
- Price To Book Value formula
- Price Earning Growth Ratio (PEG)
- Trailing PE vs Forward PE
- Forward PE
- EV to EBITDA Multiple
- EV to EBIT Ratio
- EV to Sales Ratio
- EV to Assets
What is Valuation Multiples?
Valuation Multiples approach is also known as Relative valuations / Trading Multiples. The secret lies in identifying a similar peer group of companies (relative) and learn how much are they valued. Based on the valuation of its peer group, we can arrive at the value of the company under consideration.
There are two types of valuation multiples
- Enterprise Value Multiples - These are like EV/EBITDA, EV/EBIT, EV/Sales, EV/Assets and more.
- Equity Value Multiples - These include valuation multiples like PE Ratio, Price to Book Value, Price to Cash Flow ratio, PEG ratio.
Valuation of a company can also be found using Transaction Multiples (Acquisition Multiples). The idea is again simple. You find a set of similar companies and at what valuations did they get acquired. You can apply the similar valuation multiples to calculate the value of the firm under consideration.
Equity Value vs Enterprise Value Multiples
EV is simply the Value of a firm’s equity i.e. the market Capitalization of the company. EV consider much more than just the value of a company’s outstanding equity.
Trading Valuation Multiples
Trading Multiple is nothing but identify comparable companies and performing relative valuations like an expert to find the fair value of the company.
Comparable Company Analysis
Comparable comp is a process starts with identifying the comparable companies.
Transaction Valuation Multiples
Transaction valuation multiples is a method where we look at the past (M&A) transactions and value a comparable company using precedents.
Price Earning Ratio (P/E)
PE ratio is primarily derived from the Payback Multiple.
PE Ratio formula
PE ratio formula denotes how much market price an investor is paying for a portion of the earnings of the company.
Price to Cash Flow (P/CF)
Price to Cash Flow Ratio is one of the most important investment valuation ratios.
Price to Book Value Ratio (P/B)
P/B Ratio is one of the most important ratios used for Relative Valuations.
Price To Book Value formula
Price to book value is an important measure to see how much equity shareholders are paying for the net assets value of the company.
Price Earning Growth Ratio (PEG)
PEG ratio used to determine stock’s value while taking into account earnings growth.
Trailing PE vs Forward PE
Trailing PE Ratio use the Historical EPS, while Forward PE Ratio use the Forecast EPS.
Forward PE is used to find out the projected earnings for the next year.
EV to EBITDA Valuation Multiple
The values of EV and EBITDA are used in order to find EV/EBITDA ratio of an organization.
EV to EBIT Ratio
EV to EBIT Ratio measures if a company’s share is high or cheap as compared to the broader market.
EV to Sales Ratio
EV/Sales Ratio is an interesting ratio. It takes into account the enterprise value and enterprise value is being compared with the sales of the company.