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 do I calculate a modified duration using Matlab?
The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >> 
How do I calculate the rule of 72 using Matlab?
In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >> 
How do I calculate the standard error using Matlab?
In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >> 
How do I adjust the rule of 72 for higher accuracy?
The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... 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
Understanding the Profitability Index
The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness. 
Economics
What is Neoliberalism?
Neoliberalism is a littleused term to describe an economy where the government has few, if any, controls on economic factors. 
Fundamental Analysis
Explaining the Monte Carlo Simulation
Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes. 
Economics
Understanding Limited Liability
Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company. 
Fundamental Analysis
Explaining the Empirical Rule
The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.