Enterprise Multiple

Loading the player...

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.

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. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  2. Enterprise Value (EV)

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

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

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

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  6. EBITDA - Earnings Before Interest, ...

    Learn what EBITDA is, watch a short video to learn more and with ...
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. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  7. Stock Analysis

    Dow Chemical: An Activist Investment Analysis (DOW)

    Read about how an activist hedge fund demanded changes at Dow Chemical. Learn about deal structure of the proposed merger between Dow and DuPont.
  8. Term

    What's a Vertical Merger?

    A vertical merger occurs when two companies that produce goods or services for the same finished product merge operations.
  9. Fundamental Analysis

    4 Reasons Small Cap Companies Are Actively Engaged in M&As

    Read about the reasons why smaller-cap companies actively take part in mergers and acquisitions (M&As). In addition to new synergies, they also access new markets.
  10. Investing

    Johnson & Johnson P/E Ratio: A Quick Analysis

    Calculating and analyzing Johnson and Johnson's P/E Ratio.
RELATED FAQS
  1. What is considered a healthy EV/EBITDA?

    While average EV/EBITDA values vary by sector and industry, a general guideline is an EV/EBITDA value below 10 is commonly ... Read Full Answer >>
  2. 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 >>
  3. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  4. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  5. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center