Assessing a company’s value is one of the key factors that can either lead to the success or failure of your next financing round, sale, or growth strategy as a founder. With the help of business valuation multiples, you can easily compare your company with other similar businesses based on important figures like earnings, revenue, or net assets.
The 2025 US Middle Market Monitor report shows that middle-market firms (with revenues of $10M–$500M) reached an average EBITDA multiple of 7.6x in Q1 2025, the highest since mid-2022. This surge underscores how market shifts complicate these benchmarks for scaling startups.
In this guide, we explain the fundamentals of business valuation multiples for founders, covering both equity multiples and enterprise value multiples, along with practical examples of how they can be applied to assess and grow your business.
What are valuation multiples in business?
Business Valuation multiples are financial measurement tools that compare one financial metric to another by way of a ratio in order to make different businesses comparable. Multiples refer to the ratio of one financial metric (for example, Share Price) to another financial metric (for example, Earnings per Share). It is a simple method for estimating a company’s worth and contrasting it with other companies.
Types of Business Valuation Multiples
Valuation multiples are usually divided depending on the financial metrics that they use to assess the company’s value. The main types include:
1) Equity Multiples
Equity multiples refer to the financial ratios used for valuing a company’s equity component alone. These multiples are great tools for investors to perform analysis of stock-related metrics, through which they gain a deeper understanding of a company’s financial condition and its position in the market. In general, equity multiples are indicative of a company’s profitability, its potential to increase profits, and the general attractiveness of the business as an investment. Some common equity multiples used in valuation calculations are listed below:
P/E Ratio
The most popular stock multiple is the P/E ratio, which is calculated as the ratio of share price to earnings per share (EPS) and has easily accessible input data.
For example, let’s say that a company’s share price is $120 and its earnings per share (EPS) are $8. The P/E ratio would be $120 / $8 = 15, which shows that investors are putting in $15 for every $1 of earnings they get.
Price/Book Ratio
Calculated as the ratio of share price to book value per share, this ratio is helpful when assets are the main source of earnings.
For example, if a firm has a share price of $60 and a book value per share of $30, the price/book ratio would be $60 / $30 = 2, which means that investors are willing to pay $2 for each $1 of the company’s net assets.
Dividend yield
Calculated as the ratio of dividend per share to share price, it is used to compare cash returns across different investment types.
For example, consider a company that pays an annual dividend of $5 per share and whose stock is trading at $100. The dividend yield comes to $5 / $100 = 5%, i.e., investors get $5 per year for each $100 they have invested.
Price/Sales
It is calculated as the ratio of Share Price to Sales (Revenue) Per Share and is used for quick estimates and for businesses that experience losses.
To give you an example, let’s say that a company’s current stock trading price is $90, while its sales per share amount to $45. By dividing the price by sales, we get $90 / $45 = 2, which implies that investors pay $2 for every $1 of revenue generated.
2) Enterprise Value Multiples
Enterprise value multiples look at a company’s financial performance more broadly by considering its total capital structure, that is, both debt and equity. Such measures are especially important in mergers and acquisitions (M&A) since they help to understand the total value of a company, which is not affected by changes in its financing. Some typical enterprise value multiples used in company worth analyses are listed below:
EV/Revenue
It is calculated as the ratio of enterprise value to sales or revenue and is somewhat impacted by variations in accounting.
As an illustration, imagine a firm’s enterprise value is $500 million while its yearly revenue equals $250 million. Then, the EV/Revenue ratio will be 2, that is, $500 / $250 = 2, which means investors are effectively spending $2 for every $1 of the firm’s revenue.
EV/EBITDA
The most popular enterprise value multiple, EV/EBITDA, is calculated as enterprise value divided by earnings before interest, tax, depreciation, and amortization. It can be used in place of free cash flows.
Take a situation where a business enterprise is worth $600 million and is able to earn $75 million in EBITDA a year. The EV/EBITDA multiple would be 8 ($600 ÷ $75) in this case. This means that financiers value the firm at $8 for every $1 of EBITDA.
EV/Invested Capital
It is calculated as the ratio of enterprise value to Invested Capital and is utilized for capital-intensive sectors.
Imagine a scenario where a company’s total enterprise value stands at $900 million, while its invested capital amounts to only $300 million. The EV/Invested Capital ratio, in this case, will be 3, which is simply the result of dividing $900 by $300. In fact, it reveals that the market values the company at three times the capital that has been put into the business.
EV/EBITDAR
Calculated as enterprise value divided by earnings before interest, taxes, depreciation, and amortization, and rental costs, it is most commonly used in the hotel and transportation industries.
For example, say a company has an enterprise value of $1.2 billion and generates $150 million of EBITDAR. It will have an EV/EBITDAR multiple of 8 ($1,200 ÷ $150). This implies that investors pay $8 for each $1 of EBITDAR.
Valuation multiples methods
Valuation multiples play a key role in comparative analyses and are the key element in two major methods: comparable company analysis and precedent transaction analysis. These are the two predominant approaches that allow benchmarking a company’s financials and justifying valuation decisions.
1) Comparable company analysis
This method determines a company’s value by looking at the valuation of similar publicly traded companies. The main idea is that companies with similar traits should have similar valuation multiples; thus, the analysis is market-driven and relevant.
Example
SunWave Energy wants to determine its worth using equity multiples, which provide a clear picture of a company’s profit-making ability, growth potential, and appeal as an investment to investors.
Step 1: Identify Comparable Public Companies
We select companies that work within the same industry and have approximately the same size, business model, and growth characteristics.
| Company | P/E | Price/Book | Price/Sales | EV/EBITDA |
| SolarWave Inc | 16.7× | 2.5× | 3.0× | 10.2x |
| GreenGrid Ltd | 16.7× | 2.8× | 2.83× | 9.8x |
| EcoPower Corp | 16x | 2.6× | 2.8× | 10.5x |
Average multiples:
- P/E = 16.5×
- Price/Book = 2.63×
- Price/Sales = 2.88×
- EV/EBITDA = 10.17x
Step 2: Determine the Target Company’s Financial Metrics
Find the most important financial figures of the target company, such as EBITDA, Net Income, Revenue, Shares Outstanding, and Net Debt.
SunWave Energy (target company) has:
- Net Income = $65 million
- Revenue = $450 million
- Book Value = $200 million
- EBITDA = $80M
- Shares Outstanding = 50 million
- Net Debt = $30 million
Step 3: Apply the Comparable Multiples
To find the value, you should utilize comparative multiples to multiply the financial metrics of SunWave Energy.
A. P/E Valuation (Equity Value)
Equity Value = Net Income × P/E
= 65 × 16.5 = 1,072.5M
B. Price/Book Valuation (Equity Value)
Equity Value = Book Value × Price/Book
= 200 × 2.63 = 526M
C. Price / Sales Valuation (Equity Value)
Equity Value = Revenue × Price/Sales
= 450 × 2.88 = 1,296M
D. EV / EBITDA Valuation (Enterprise Value)
Enterprise Value = EBITDA × EV / EBITDA
= 80 × 10.17 = 813.6M
Step 4: Convert Enterprise Value to Equity Value (for EV-based methods)
Subtract net debt from enterprise value to get equity value.
Equity Value = EV − Net Debt
- EV / EBITDA:
= 813.6M − 30M = 783.6M
Step 5: Calculate Value per Share
Figure out the per-share value by taking the equity value and dividing it by the total number of shares outstanding.
FMV per Share = Equity Value / Shares Outstanding
| Method | Equity Value ($M) | Value per Share ($) |
| P/E | 1,072.5 | 21.45 |
| Price / Book | 526 | 10.52 |
| Price / Sales | 1,296 | 25.92 |
| EV / EBITDA | 783.6 | 15.67 |
According to the Comparable Company Analysis of SunWave Energy, the fair value per share is estimated to be between $10.52 and $25.92, depending on the valuation multiple applied.
2) Precedent M&A transactions
This method determines a business’s worth based on the acquisition prices paid for similar companies in comparable mergers or acquisitions. Basically, it illustrates average prices buyers have paid for similar companies, often incorporating control or strategic premiums.
Example
AlphaTech Solutions is considering an estimate of its worth through a Precedent Transaction Analysis method, which involves investigating past acquisition prices of similar companies in the same industry.
Step 1: Identify Comparable M&A Transactions
Choose recent acquisitions of companies that operate in a similar industry, are of comparable size, and have similar growth profiles and business models.
| Acquired Company | Revenue (LTM) | Transaction Value | EV/Revenue Multiple |
| CloudAxis Software | $16M | $80M | 5.0x |
| DataStream Labs | $20M | $100M | 5.0x |
| NovaScale Systems | $14M | $56M | 4.0x |
Step 2: Calculate Transaction Multiples
Say the company under consideration brings in $18 million in LTM revenue, has no outstanding debt, and holds $3 million in cash.
Take the principal financial number of your business (e.g., revenue) and apply the transaction multiples to it to derive the estimated enterprise value.
Applying the multiples:
- Low case (4.0×): Enterprise Value = 18M × 4.0 = $72M
- High case (5.0×): Enterprise Value = 18M × 5.0 = $90M
- Midpoint (4.67×): Enterprise Value = 18M × 4.67 ≈ $84.1M
Step 3: Convert Enterprise Value to Equity Value
Equity value of the company can be obtained by adjusting the enterprise value for cash and debt.
Using our assumptions (debt-free, $3M cash):
Equity Value = Enterprise Value + Cash − Debt
| Case | Enterprise Value | + Cash | − Debt | Equity Value |
| Low | $72M | +3M | 0 | $75M |
| Mid | $84.1M | +3M | 0 | $87.1M |
| High | $90M | +3M | 0 | $93M |
Step 4: Derive Per-Share Value
Figuring out the share value is done by taking the total equity and dividing it by the total number of shares issued and outstanding.
Assuming the company that is the target has 12 million shares in total.
| Case | Equity Value | Per-Share Value |
| Low | $75M | $6.25/share |
| Mid | $87.1M | $7.26/share |
| High | $93M | $7.75/share |
Value Range: $75M – $93M
Per-share FMV Range: $6.25 – $7.75
Advantages of Valuation Multiples
Valuation multiples are a common option in financial research since they provide a number of important benefits.
- Simplicity: A wide spectrum of users, from inexperienced investors to seasoned professionals, can easily compute and understand these ratios.
- Relevance: Such multiples allow for quick assessments of a company’s standing in the market by giving immediate access to key financial metrics like revenue or profitability.
- Comparability: Multiples facilitate the comparison of businesses by highlighting their similar strengths and weaknesses in the same industry.
Disadvantages of Valuation Multiples
Valuation multiples are helpful, but they also have a few drawbacks that you need to know.
- Oversimplification: By overlooking subtleties such as growth potential or distinct competitive advantages, multiples may oversimplify complex financial realities.
- Snapshot view: Because these measures reflect a single point in time, they may be misleading if a company’s financial performance fluctuates significantly.
- Debt considerations: Some multiples, especially equity multiples, may fail to account for a company’s debt, resulting in an inaccurate picture of its financial situation.
FAQs on Business Valuation Multiples
The following are some frequently asked questions about company valuation multiples.
How can founders use multiples to prepare for funding or exit?
The founder selects the most important ratios, for example, EV/EBITDA or P/E, used with the respective companies and applies these figures to calculate possible valuation ranges. Therefore, this method allows founders to forecast investors’ expectations and gain leverage in negotiations, both in funding and acquisition situations. Furthermore, continual monitoring of multiples facilitates valuation disclosure and provides valid reasons for them.
How do growth and risk affect valuation multiples?
Usually, companies experiencing high growth are priced with higher multiples, as these are indications to investors of their expected future profits. On the other hand, companies that are susceptible to market risks or have a poor financial status often get lower multiples. Nevertheless, a company with regular and dependable revenue generation could also enjoy a high valuation.
How does company size impact valuation multiples?
Larger companies generally have higher multiples because they are financially stable, liquid, and have diversified operations. On the other hand, smaller companies are more likely to receive discounted value since they have fewer resources, are more concentrated, and have lower investor confidence. However, small firms that are niche players or fast-growing businesses can still have high multiples.
How do interest rates affect valuation multiples?
A rise in interest rates escalates the cost of borrowing and decreases the value of future earnings, lowering multiples. On the other hand, when the rates are low, investors seek higher returns from equities, resulting in higher multiples. This dynamic particularly affects growth-oriented and highly leveraged firms.
How are revenue multiples different from EBITDA multiples?
Multiples that are revenue-based (EV/Revenue or Price/Sales) would be appropriate in the case of a startup or a negative-earning company since it would reflect top-line performance. Multiples of EBITDAs (EV/EBITDA) point to profitability and efficiency of operations, which are of use in comparison to mature businesses. Together, they present a more complete picture of company value.
Making Better Valuation Decisions with Expert Support
Founders can use business valuation multiples as a practical tool to gauge their company’s worth during fundraising, exits, or expansion planning. Knowing how to use both equity and enterprise value multiples in comparative analyses helps make wiser, fact-based decisions; however, professional guidance is still necessary for full accuracy and trustworthiness.
To help with this, Cheqly partners with Eqvista’s Real-Time Company Valuation® to offer startups and growing businesses real-time, audit-ready 409A valuation services, giving founders accurate, IRS-compliant insights for confident decision-making.
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