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
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.