The Bigger Picture In Selling Your Business

What Does Multiple Mean?

A company’s earnings multiplied a number of times to determine its value. This understanding of ‘multiples’ is used in the multiplier method for valuing a business for sale.

What is the multiplier method? When using adjusted net profit, it is: Adjusted Net Profit x Multiple (of industry) = Valuation. The multiples of earnings approach is usually the preferred method of valuation of a lot of SMEs. When valuing such businesses, multiples are applied to adjusted net profit, earnings before interest and taxes (EBIT / EBITDA) to determine sale price. However, in lieu of adjusted net profit, a multiple can be applied to cash flow or even gross margin.

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