Week 8. Trading and Transaction Multiples

Valuation Using Multiples

Assessing the value of a company by comparing it to fundamentally similar companies.

Law of One Price

The concept that in an efficient market, identical goods must have only one price.

Market Approach

A method for valuing a company based on the prices of similar companies.

Trading Multiples

Valuation ratios derived from the pricing of similar publicly traded companies.

Transaction Multiples

Valuation ratios based on completed transactions of similar companies, often used in mergers and acquisitions.

Multiples Analysis

A method used to compare a company’s financial metrics to similar companies to aid valuation.

Comparable Companies (Comps)

A set of businesses used as a benchmark for assessing the value of another company.

Enterprise Value (EV)

The total value of a company, calculated as the market value of its equity plus debt, minus cash.

Trailing Metrics

Financial metrics based on past performance, typically using latest twelve months (LTM) data.

Forward Looking Metrics

Financial forecasts that project future performance, usually covering the next twelve months (NTM).

Equal Weighted Average

A method of averaging that gives equal weight to all data points.

Liquidity Premium

An adjustment to valuation to account for the reduced value of assets that are not easily sold.

Control Premium

The increase over the market price that a buyer is willing to pay for a controlling interest in a company.

Sum of Parts Valuation

A method that values various segments of a business separately and aggregates them for total valuation.

P/E Ratio (Price-to-Earnings Ratio)

A valuation ratio calculated by dividing the current share price by its earnings per share.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

A measure of a company's overall financial performance.