Multiples
Also known as Valuation Multiples, Trading Multiples, Comparable Multiples, P/E, EV/Revenue, EV/EBITDA
Multiples are ratios of company value to a fundamental input (earnings, revenue, EBITDA, cash flow), used to compare valuations across firms. The main families are price multiples (P/E, P/S) and enterprise value multiples (EV/EBITDA, EV/Sales). EV multiples are preferred when companies have different capital structures.
Formula
Multiple = Value Numerator / Fundamental Denominator- Value Numerator
- Equity price (P) or enterprise value (EV = market cap + debt - cash)
- Fundamental Denominator
- Earnings, EBITDA, revenue, book value, or another per-firm fundamental
In depth
A multiple is a shortcut for a discounted cash flow valuation. The CFA curriculum frames it as the method of comparables: pick a peer set, observe what the market is paying for each unit of revenue or EBITDA, apply that ratio to the target. The shortcut hides three deep assumptions: that the peer set is genuinely comparable, that the multiple is stable across time, and that the fundamental being multiplied is a clean measure of value.
The two big families are price multiples (numerator is equity market cap or share price) and enterprise value multiples (numerator is EV = market cap + debt - cash). EV multiples are conceptually cleaner because they apply to the entire capital stack, not just equity. P/E is the most widely quoted but the least comparable across companies with different debt loads or tax positions.
Within EV multiples, the denominator hierarchy is roughly: EV/EBITDA for profitable companies, EV/EBIT for capital-intensive businesses where depreciation is meaningful, EV/Revenue for pre-profit growth companies, and EV/User or EV/ARR for SaaS and consumer subscription businesses with weak GAAP profitability.
Why it matters
Multiples are how every comparable-transaction valuation in venture, M&A, and public equity actually gets done. They drive Series A pricing (compare to recent rounds at similar ARR), exit-multiple scenarios in MOIC modeling, and the public-comp markdowns that drove 2022-2023 NAV write-downs in venture. A 5x revenue multiple versus a 15x revenue multiple is a 3x difference in valuation on identical financials, which is why peer-set selection is where most of the work happens.
Worked example
Three SaaS companies in the same peer set, all $50M ARR:
| Company | EV | EV/Revenue | EV/EBITDA | EBITDA margin |
|---|---|---|---|---|
| Public A | $500M | 10x | 33x | 30% |
| Public B | $750M | 15x | 50x | 30% |
| Private | ? | ? | ? | 30% |
Median public comp EV/Revenue is 12.5x. Applied to the private company's $50M ARR:
Implied EV = 12.5x * $50M = $625M
Implied EV/EBITDA = $625M / ($50M * 30%) = 41.7x
Cross-check: that EV/EBITDA sits inside the 33x-50x peer range, so the comp is internally consistent. The valuation hinges on accepting Public A and B as genuine comparables.
Frequently asked
What's the difference between price multiples and enterprise value multiples?
Price multiples divide equity value by a per-share fundamental (P/E = price / EPS). Enterprise value multiples divide total firm value (equity + debt - cash) by a pre-interest fundamental (EV/EBITDA, EV/Sales). EV multiples are more comparable across companies with different leverage, which is why they dominate cross-company comps.
When should I use EV/Revenue vs EV/EBITDA?
EV/Revenue is used when EBITDA is negative or near zero, common for high-growth software and venture-stage companies. EV/EBITDA applies once a business is profitable enough that earnings power, not top-line, drives value. Damodaran's sector data shows EV/EBITDA cluster between 8x and 15x for mature sectors, with software historically running 15x to 30x at peak.
Why is P/E weaker than EV/EBITDA for comparisons?
P/E mixes operating performance with capital structure: a levered firm and an unlevered firm with identical operations can show very different P/Es. EV/EBITDA strips out interest and taxes, so the multiple reflects operating economics. Per the CFA Institute curriculum, EV/EBITDA is also calculable when net income is negative.
What's the relationship between a revenue multiple and an EBITDA multiple?
They are linked by margin: EV/Sales = (EV/EBITDA) × (EBITDA/Sales). A company growing fast at 30% EBITDA margin trading at 15x EV/EBITDA implies 4.5x EV/Sales. Cross-check both before accepting either as a comp benchmark.