Enterprise Multiple

AAA

DEFINITION of 'Enterprise Multiple'

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.

INVESTOPEDIA EXPLAINS '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).

VIDEO

Loading the player...
RELATED TERMS
  1. Enterprise Value (EV)

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

    A corporate action in which a company buys most, if not all, ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for ...
  4. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  5. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  6. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
RELATED FAQS
  1. Which metric should I pay more attention to, EV/EBITDA or P/E?

    The price-to-earnings (P/E) ratio is one of the most popular and widely used financial metrics, but it has a number of inherent ... Read Full Answer >>
  2. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  3. Does stockholders equity accurately reflect a company's worth?

    Stockholders' equity is one method to evaluate a company's worth. It tends to work better for companies in established industries ... Read Full Answer >>
  4. What are common growth rates that should be analyzed when considering the future ...

    Some of the most common growth rate metrics that investors and analysts consider in evaluating a company's future prospects ... Read Full Answer >>
  5. What metrics are often used to evaluate companies in the drugs sector?

    Some of the equity valuation metrics that analysts and investors most commonly use to evaluate companies in the pharmaceutical ... Read Full Answer >>
  6. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Tender offers for share buybacks are often made at a premium to the current market price; it may be in an investor’s best ... Read Full Answer >>
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

    Using Enterprise Value To Compare Companies

    Learn how enterprise value can help investors compare companies with different capital structures.
  3. Options & Futures

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  4. Budgeting

    Understanding Oil Industry Terminology

    The drillers are just one aspect of the oil & gas industry, and by knowing some details of their role, you'll be better suited to make investment decisions.
  5. Fundamental Analysis

    Value Investing Using The Enterprise Multiple

    This simple measure can help investors determine whether a stock is a good deal.
  6. Fundamental Analysis

    Are Fast-Casual Restaurants Overvalued?

    Can fast-casual restaurants actually grow to the levels that investors believe they can?
  7. Investing

    How To Profit From M&A Announcements

    We look at four strategies that seek to profit from merger and acquisitions announcements.
  8. Charts & Patterns

    Debunking 8 Myths About Technical Analysis

    Investopedia exposes a few common myths about technical analysis.
  9. Stock Analysis

    The CVS Target Deal: A Healthy Union?

    The CVS Health and Target deal should be a win for both. Here's an analysis with a twist.
  10. Economics

    How Gloomy Headlines Support Eurozone Stocks

    It's hard to miss the many headlines on Europe lately with news ranging from Greece’s debt saga to the details of ongoing European Central Bank stimulus.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!