Earnings Multiplier

What is the 'Earnings Multiplier'

The earnings multiplier is an adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used to discount future earnings, and allows investors to compare expected growth to an amount of money invested over the same period at current rates.

BREAKING DOWN 'Earnings Multiplier'

The earnings multiplier is similar to a discounted cash flow in that future earnings are rolled back to determine how much they are worth in today's dollars. Investors use the earnings multiplier to figure out how much a company is worth, today, based on how it is expected to grow in the future.

RELATED TERMS
  1. Equity Multiplier

    The ratio of a company’s total assets to its stockholder’s equity. ...
  2. Forward Price To Earnings - Forward ...

    A measure of the price-to-earnings ratio (P/E) using forecasted ...
  3. Investment Multiplier

    The term investment multiplier refers to the concept that any ...
  4. Accounting Earnings

    The amount of money a company has earned during a given period, ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Annualized Income

    An estimate of the amount of money that an individual, business ...
Related Articles
  1. Markets

    Equity Multiplier

    The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity.
  2. Markets

    What's a Multiplier?

    A multiplier attempts to measure the effect of aggregate spending over time.
  3. Investing

    Discounting With The Discount Rate

    The discount rate is the interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future. Let's say you need $1,000 one year from now to go ...
  4. Investing

    Beware False Signals From The P/E Ratio

    The P/E ratio is a simple tool for evaluating a company, but no one ratio can tell the whole story.
  5. Investing

    How To Find P/E And PEG Ratios

    If these numbers have you in the dark, these easy calculations should help light the way.
  6. Markets

    Why Are Global Markets Freaking Out? A Markets Explainer

    Stock markets around the world are off to their worst year ever, but understanding what stocks are will take the mystery out of their movements.
  7. Investing

    Is Stock With a Lower P/E Always A Better Choice?

    Is a stock with a lower P/E always a better investment than a stock with a higher one? The short answer is no, but it depends on a few things.
  8. Investing

    Investment Valuation Ratios: Price/Earnings Ratio

    By Richard Loth (Contact | Biography)The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most ...
  9. Markets

    What are Earnings?

    The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year.
  10. Investing

    Explaining Forward Price-to-Earnings Ratio

    The estimated P/E of a company is often used to compare current earnings to estimated future earnings.
RELATED FAQS
  1. What is the difference between the deposit multiplier and the money multiplier?

    Explore the deposit multiplier and the money multiplier, two fundamental concepts of Keynesian economics, and learn how they ... Read Answer >>
  2. How does monetary policy affect a bank's deposit multiplier?

    Find out how the Federal Reserve uses monetary policy to impact the deposit money multiplier for American banks, including ... Read Answer >>
  3. Which is better: A high or low equity multiplier?

    Learn about the equity multiplier, how it is calculated, what it measures and why a low equity multiplier is preferred to ... Read Answer >>
  4. Why is the multiplier effect associated with Keynesian economics?

    Learn what the Keynesian multiplier effect is and how it provided a justification for increased government spending in the ... Read Answer >>
  5. What does a large multiplier effect signify?

    Find out more about the multiplier effect, what it measures and what a large multiplier effect indicates about an economy. Read Answer >>
  6. How does the equity multiplier change in relation to asset turnover?

    Find out about the relationship between the equity multiplier and the asset turnover ratio and how both are used in the DuPont ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center