What is finance, a business multiple?
Enterprise multiples is a type of ratio used to identify the current value or value of the company. This process, which is also known as income before interest, taxes, depreciation and amortization or the ratio of EBITDA, requires the consideration of the value of the company in a way that is very similar to the way the potential buyer would assess the company. One of the advantages of this approach is that the ratio tends to include more factors than some other strategies, especially the price ratio.
As part of the development of business multiple, several key factors that affect the overall value of business are considered. Some of this are looking at the cash flow generated by the company. The aim is to ensure that the amount of earnings that is constantly flowing into the business is sufficient to meet the operating costs and maintain profitable business. To achieve this, gross earnings must be compared with the debt level maintaining the amount of payments that are made for this debt in any billing period.
Business, which barely generates enough income to cover its operating costs, including debt, and does not have many assets, is supposed to have a low business multiple. Businesses that have a healthy cash flow, resulting in excess, would have a high business multiple. One of the factors that can lead to an inaccurate calculation of multiple is the underestimation of the assets of the company. For example, if an enterprise has earnings that barely cover expenses and assets are not taken into account, the company multiple will be low. By allowing these assets, especially those that can be converted to cash without negatively affecting the functioning of the company, a low multiple can increase to the desired level.
S De is connected by several advantage of the company's business multiple. One has to do with providing information about potential investors who motivate them to invest in the company. If the multiple is to a certain extent, it is an indicator that the company is StabiLing and shares are likely to generate revenues over time. It is also possible to use multiples as a means of attracting buyers, if the current owners are interested in the sale of the company, provided that the ratio is to the extent that the future buyer thinks that investment worthy of attention.