The formula
enterprise value = metric × multiple · equity = enterprise value − debt + cash
What it means
It is the most used method for valuing a small company: take an annual metric — revenue, EBITDA or profit — and multiply it by what the market pays for similar businesses. What comes out is the enterprise value, and to get to what the shares are worth you subtract the debt and add the cash, because the buyer inherits both.
How to work it out by hand
- Choose the metric and take last year's closed figure
- Multiply it by the multiple that fits the sector
- Subtract the financial debt from the result
- Add the cash: that is what the equity is worth
What is worth knowing
The multiple is a form field on purpose. It changes by sector, by size, by country and by how the market is doing, and publishing one here would mean vouching for a figure that expires within months: software trades at very different multiples from retail, and 2021 traded at very different multiples from now. Sector medians are published quarterly by business schools and investment banks, and that number comes from whoever is valuing. One deeper caveat: the multiple is itself a summary of expectations, so two reasonable people can value the same business with a twofold gap. That is why the page also gives a range.