Valuation using multiples
Value a business with your chosen metric and multiple.
What the figures mean
- Value of the whole business (EV)
The value of business operations for owners and lenders together. This model subtracts net debt to estimate the value of owners’ shares.
Simple example: Business value €100,000 less €30,000 net debt gives €70,000 of estimated equity value.
- Earnings before interest, tax, depreciation and amortisation (EBITDA)
Debt interest, income tax, depreciation and amortisation have not yet been deducted. The figure is neither net profit nor actual cash available.
Simple example: EBITDA of €20,000 can coexist with equipment purchases and loan repayments that reduce available cash.
- Share price relative to earnings (P/E)
Share price divided by earnings per share. This is a multiple, not a return percentage; the usual interpretation does not apply to a loss.
Simple example: A €100 price and €10 earnings per share give a multiple of 10.
- Owners’ equity
In company accounts, assets less liabilities. In a property investment, your initial equity is your own money; the estimated value of your stake can differ from that amount.
Simple example: Company assets of €100,000 less €60,000 liabilities leave €40,000 of book equity.