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The Best Primer to Valuation Multiples

The Best Primer to Valuation Multiples

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Published by Jae Jun
http://www.oldschoolvalue.com UBS Warburg's excellent primer on valuation with multiples from 2001.
http://www.oldschoolvalue.com UBS Warburg's excellent primer on valuation with multiples from 2001.

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Published by: Jae Jun on Jun 22, 2011
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07/28/2013

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A valuation multiple is simply an expression of market value relative to a key
statistic that is assumed to relate to that value. To be useful, that statistic – whether
earnings, cash flow or some other measure – must bear a logical relationship to the
market value observed; to be seen, in fact, as the driver of that market value.

There are two basic types of multiple – enterprise value and equity:

ssss Enterprise multiples express the value of an entire enterprise – the value of all
claims on a business – relative to a statistic that relates to the entire enterprise,
such as sales or EBIT.

ssss Equity multiples, by contrast, express the value of shareholders’ claims on the
assets and cash flow of the business. An equity multiple therefore expresses the
value of this claim relative to a statistic that applies to shareholders only, such as
earnings (the residual left after payments to creditors, minority shareholders and
other non-equity claimants).

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