Valuation using multiples: How we calculate
Value a business with your chosen metric and multiple.
How we calculate
Enterprise value (EV) covers equity and creditor capital. EBITDA means earnings before interest, taxes, depreciation and amortisation; match it with an EV/EBITDA multiple. Price divided by earnings per share (P/E) values equity and does not fit this model’s EV calculation. Enterprise value = chosen metric × entered multiple. Equity value = enterprise value − net debt. You choose the multiple; no market benchmark is inferred.
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.
Worked example
These illustrative inputs let you check the method. They are not figures for a real company or automatically current tax rates.
Inputs
- Valuation metric (e.g. EBITDA)
- 100,000
- Enterprise-value multiple (EV)
- 5
- Net debt
- 100,000
- Number of shares or units
- 10,000
Results
- Equity value
- 400,000
- Enterprise value
- 500,000
- Value per share
- 40
Change assumptions in the calculator and compare outcomes. Money follows your input unit; figures from different periods need adjustment before comparison.
Use an enterprise-value multiple matched to the metric (such as EV/EBITDA); P/E cannot be combined with subtracting net debt.