Enterprise Multiple

Loading the player...

What is an 'Enterprise Multiple'

An enterprise multiple is a ratio used to determine the value of a company. The enterprise multiple looks at a firm as a potential acquirer would, because it takes debt into account - an item which other multiples like the P/E ratio do not include. Enterprise multiple is calculated as:

 

Enterprise Multiple

Also known as the EBITDA Multiple.

BREAKING DOWN 'Enterprise Multiple'

A low ratio indicates that a company might be undervalued. The enterprise multiple is used for several reasons:

1) It's useful for transnational comparisons because it ignores the distorting effects of individual countries' taxation policies.

2) It's used to find attractive takeover candidates. Enterprise value is a better metric than market cap for takeovers. It takes into account the debt which the acquirer will have to assume. Therefore, a company with a low enterprise multiple can be viewed as a good takeover candidate.

Keep in mind that enterprise multiples can vary depending on the industry. Therefore, it's important to compare the multiple to other companies or to the industry in general. Expect higher enterprise multiples in high growth industries (like biotech) and lower multiples in industries with slow growth (like railways).

RELATED TERMS
  1. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  2. Multiple Compression

    The effect that arises when a stock trades at a certain multiple ...
  3. Enterprise Mobility

    Enterprise mobility describes a trend in business where work ...
  4. EV/2P Ratio

    The EV/2P ratio is an investment term that refers to the valuation ...
  5. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  6. Free Enterprise

    An economic system where few restrictions are placed on business ...
Related Articles
  1. Fundamental Analysis

    Explaining Enterprise Multiple

    The enterprise multiple is a ratio used to value a company as if it was going to be acquired.
  2. Fundamental Analysis

    Value Investing Using The Enterprise Multiple

    This simple measure can help investors determine whether a stock is a good deal.
  3. Markets

    Investment Valuation Ratios: Enterprise Value Multiple

    By Richard Loth (Contact | Biography)This valuation metric is calculated by dividing a company's "enterprise value" by its earnings before interest expense, taxes, depreciation and amortization ...
  4. Investing

    5 Common Trading Multiples Used In Oil And Gas Valuation

    Before you decide to invest in oil and gas, you should understand these multiples.
  5. Markets

    Introduction To Enterprise Value

    Learn how enterprise value can help investors compare companies with different capital structures.
  6. Investing

    The Three Things Most Good Stocks Have In Common

    Uncover the three things most good stocks have in common: performance, profitability and value.
  7. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  8. Economics

    What's Free Enterprise?

    Free enterprise is the economic term used to describe an economy with very little government ownership or regulation. In a free enterprise system, competition and the preferences and choices ...
  9. Fundamental Analysis

    Understanding the EBITDA/EV Multiple

    The EBITDA/EV multiple is a financial ratio that measures a company’s return on investment.
  10. Stock Analysis

    Why Is Enterprise Products Partners So Excited?

    Enterprise Products Partners has historically gone on the offensive to acquire weaker rivals in a tough spot when the commodity market turns down.
RELATED FAQS
  1. How is it possible for a company to have a negative enterprise value?

    Learn about enterprise value and how value investors use it to find good companies with undervalued stocks. Negative enterprise ... Read Answer >>
  2. What's the difference between enterprise value and market capitalization?

    Learn the difference between two commonly utilized valuation tools: market capitalization and enterprise value, and see how ... Read Answer >>
  3. What is the difference between enterprise value and equity value?

    Valuating a business accurately depends heavily on the purpose of the valuation. Learn how enterprise value and equity value ... Read Answer >>
  4. When consolidating financials, how do you calculate Enterprise Value in cases that ...

    Read about the impact of minority interests in the calculation of Enterprise Value in consolidation cases that involve minority ... Read Answer >>
  5. How can I find a company's EV/EBITDA multiple?

    Learn what the EV/EBITDA equity valuation metric is, how it is calculated and what information investors and analysts obtain ... Read Answer >>
  6. What is the difference between free enterprise and capitalism?

    Read about the differences between free enterprise and capitalism, and how it is possible to conceive of one system existing ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center