Franchise Factor

AAA

DEFINITION of 'Franchise Factor'

The measurement of the impact on a company's price-earnings (P/E) ratio per unit growth in new investment. For example, a franchise factor of 3 would indicate that the P/E ratio of a company would increase by three units for every unit of growth in the company's book value.

The franchise factor can be calculated as the product of annual investment returns in excess of market returns and the duration of the returns. A P/E ratio will not be elevated with a high franchise factor alone.

INVESTOPEDIA EXPLAINS 'Franchise Factor'

A company with a high franchise factor will have exceptionally high P/E ratios in comparison to its book value. This comes from the ability to continually capitalize on basic strengths, rather than the financial strength of the business. Because this is the case in many franchises, the term "franchise factor" was developed.

RELATED TERMS
  1. Tangible Book Value Per Share - ...

    A method of valuing a company on a per-share basis by measuring ...
  2. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  3. Price-To-Book Ratio - P/B Ratio

    A ratio used to compare a stock's market value to its book value. ...
  4. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  5. Forward Price To Earnings - Forward ...

    A measure of the price-to-earnings ratio (P/E) using forecasted ...
  6. Trailing Price-To-Earnings - Trailing ...

    The sum of a company's price-to-earnings, calculated by taking ...
Related Articles
  1. Taking Stock Of Discounted Cash Flow
    Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

  2. 10 Tips For The Successful Long-Term ...
    Trading Strategies

    10 Tips For The Successful Long-Term ...

  3. The P/E Ratio: A Good Market-Timing ...
    Budgeting

    The P/E Ratio: A Good Market-Timing ...

  4. Why are P/E ratios generally higher ...
    Investing

    Why are P/E ratios generally higher ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center