Multiples Based Methods

Comparable company analysis and comparable transaction analysis are multiples based analyses, meaning that the value of an asset or company is calculated as a multiple of a metric, such as earnings per share, cash flow, revenues, or EBITDA. The primary characteristic of comparable company analysis is that it is based on current stock prices and generally reflects the value for a minority interest (or non-control ling interest). The primary characteristic of comparable transaction analysis is that it is based on prices paid in acquisitions for control of the company and therefore includes a control premium (or price paid in order to take control of the company, as opposed to a minority share whose owner cannot determine on his or her own how the company is run). Thus, in an efficient market, the only difference in valuation using comparable company analysis and valuation using comparable transaction analysis should be the control premium.

What is a multiple?
if a candy company sold for $100 million and the company had revenues of $50 million for the year ending 2005, than the company sold at a sales multiple of 2x 2005 sales.

$100 million purchase price / $50.million in sales in 2005 = 2x 2005 sales

A sales multiple is just one type of multiple; there are many types of multiples that are used in valuation analysis.