Multiples Approach

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DEFINITION

A valuation theory based on the idea that similar assets sell at similar prices. This assumes that a ratio comparing value to some firm-specific variable (operating margins, cash flow, etc.) is the same across similar firms.

INVESTOPEDIA EXPLAINS

In other words, the theory is that when firms are comparable, we can use the multiples approach to determine the value of one firm based on the value of another.


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