What do you mean by multiples in business valuation?

Multiple is usually the factor applied on various financial metrics to arrive at fair valuation for the business. Multiples move in a band and differs from industry to industry. An industry enjoying consistent growth in good economic conditions tend to command multiples which are at the top end of the band. Multiples are generally used with Sales, EBITDA, Free Cash Flow to arrive at a valuation. For example, “1.5x Sales” means multiplying the annual sales by 1.5 gives you an estimate of the valuation of the business.

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