Business Tools for Career Readiness

Finance for
Non-Financial Professionals
Module 4

with David Standen, D.B.A.

Valuation Methods
1. Market Valuation
2. Multiples Method
3. Discounted Cash Flow (DCF) Analysis

2. Multiples Method

2. Multiples Method
Useful for comparing companies in a sector

2. Multiples Method
Useful for comparing companies in a sector
Look at which multiples are used for other
companies in the industry to ascertain equity
value

2. Multiples Method
Useful for comparing companies in a sector
Look at which multiples are used for other
companies in the industry to ascertain equity
value
Examples of these valuation multiples include:
Price/earning multiples (P/E ratios)
EBITDA multiples

Ex.) Multiples Method

What is the value of Company A which has:
Debt = $100 million
Annual sales = $180 million,
EBITDA = $70 million
Earnings = $40 million

Common Stock Comparison

Company

Value
(Market
Cap)

Sales

EBITDA

EARNINGS

900

220

115

82

700

190

90

60

650

280

68

42

320

150

45

26

Multiples
Company

Sales Multiples
(Market Cap /
Sales)

EBITDA Multiples
(Market Cap /
EBITDA)

Price-to-Earnings
Multiples
(Market Cap /
Earnings)

4.1

7.8

11.0

3.7

7.8

11.7

2.3

9.6

15.5

2.1

7.1

12.3

Average

3.1

8.1

12.6

Multiples Valuation
Using the sales multiple:
Company As sales of $180 million x 3.1 (average sales multiple) =
$558 million (Enterprise Value) - $100 million (Net Debt) =
$458 million (Equity Value)

Using the EBITDA multiple:

Company As EBITDA of $70 million x 8.1 (average EBITDA multiple) =
$565 million (Enterprise Value) - $100 million (Net Debt) =
$465 million (Equity Value)

Using the price-to-earnings multiple:

Company As earnings of $40 million x 12.6 (average price-to-earnings
multiple) = $504 million (Enterprise Value) - $100 million (Net Debt) =
$404 million (Equity Value)

Using the multiples method:

Enterprise Value of our company is estimated
at between $505 and $565 million.
Accounting for debt, our companys Equity
Value is between $405 and $465 million
dollars.