Valuation Terms

Multiple

A shortcut buyers use to value a business. For example, if a business has $1 million of EBITDA and sells for 5x EBITDA, the price is $5 million. Why it matters: Multiples make offers easy to compare, but the “right” multiple depends on what earnings metric is used and how risky or durable those earnings appear to buyers.

Related terms

EBITDA

Earnings before interest, taxes, depreciation, and amortization. In plain English, it is a common estimate of business profit before certain accounting and financing costs. Why it matters: Many buyers use EBITDA to compare businesses, estimate debt capacity, and set valuation, so small changes to EBITDA can have a large impact on price.

More from Valuation Terms

Add-Backs Adjusted EBITDA CapEx Cash Flow EBITDA Enterprise Value Equity Value Free Cash Flow Gross Margin Gross Profit Net Income Net Working Capital

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