DEFINITION of 'Franchise Factor'
The measurement of the impact on a company's priceearnings (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.

Multiple
A term that measures some aspect of a company's financial wellbeing, ... 
Trailing PriceToEarnings  Trailing ...
The sum of a company's pricetoearnings, calculated by taking ... 
PriceEarnings Ratio  P/E Ratio
A valuation ratio of a company's current share price compared ... 
Forward Price To Earnings  Forward ...
A measure of the pricetoearnings ratio (P/E) using forecasted ... 
Price to Tangible Book Value  ...
A valuation ratio expressing the price of a security compared ... 
PriceToBook Ratio  P/B Ratio
A ratio used to compare a stock's market value to its book value. ...

Why are P/E ratios generally higher during times of low inflation?
Inflation affects equity prices in several ways. Most importantly, investors are willing to pay less for a certain level ... Read Full Answer >> 
Where can I find the P/E ratios for the Dow and S&P 500?
When it comes to valuing stocks, the pricetoearnings (P/E) ratio is one of the oldest and most frequently used metrics. ... Read Full Answer >> 
How does the market share of a few companies affect the HerfindahlHirschman Index ...
In economics and commercial law, the HerfindahlHirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >> 
What does the rule of 70 indicate about a country's future economic growth?
The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >> 
How is the rule of 70 related to the growth rate of a variable?
The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >> 
What are the benefits of using ceteris paribus assumptions in economics?
Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>

Fundamental Analysis
Taking Stock Of Discounted Cash Flow
Learn how and why investors are using cash flowbased analysis to make judgments about company performance. 
Trading Strategies
10 Tips For The Successful LongTerm Investor
These guiding principles will help you avoid common folly during the decisionmaking process. 
Budgeting
The P/E Ratio: A Good MarketTiming Indicator
Check out the returns this newer technical analysis tool would've yielded over the period from 1920 to 2003. 
Markets
Understanding The P/E Ratio
Learn what the price/earnings ratio really means and how you should use it to value companies. 
Markets
Reading Financial Tables Tutorial
Learn about six common types of financial tables and figure out how to interpret them. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Economics
What is Deadweight Loss?
Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. 
Economics
How to Do a CostBenefit Analysis
The benefits of a given situation or businessrelated action are summed and then the costs associated with taking that action are subtracted. 
Fundamental Analysis
Calculating the HerfindahlHirschman Index (HHI)
The HerfindhalHirschman Index, (HHI) is a measure of market concentration and competition among market participants. 
Investing
How To Implement A Smart Beta Investing Strategy
Smart beta investing is the notion of rewriting investment rules to improve investment outcomes by targeting exposures to intuitive ideas or factors.