Trading multiples
Shorthand for a discounted cash flow, and why the shorthand leaks.
A multiple is a compressed valuation. EV/EBITDA of 10× is not an arbitrary market convention; it is what a DCF collapses to once you fix growth, margins, reinvestment and risk. That compression is the point (it makes companies comparable in a single glance) and it is also the danger, because two businesses can trade at identical multiples for entirely different reasons. Knowing which multiple suits which industry, and what a difference between two of them actually means, is the difference between a comps table that argues something and one that merely lists numbers.
What this course covers
- 01Choose the multiple the sector uses
- 02Build a consistent numerator and denominator
- 03Decide trailing or forward, and stay there
- 04Read the dispersion, not just the median
- 05Explain the position, do not just report it
What you will be able to do
- EV/EBITDA for capital-intensive and mature businesses, and across different tax regimes
- EV/EBIT where depreciation policy differs materially between peers
- P/E for banks, insurers and stable consumer businesses with similar leverage
- EV/Revenue for loss-making or early-stage companies, where earnings multiples are undefined
- Sector-specific multiples where the value driver is physical: EV/subscriber, EV/bed, EV/tonne
Where it does not apply
- P/E across companies with different capital structures: leverage drives EPS and makes the comparison meaningless
- EV/EBITDA where one peer leases its assets and another owns them, unless leases are treated consistently
- Any earnings multiple on a company with negative or near-zero earnings
- EV/Revenue as a primary method for a mature business: it ignores whether revenue is profitable
How this prepares you for the assessment
This is one of 17 courses, and none of them is required for the Verified Valuation Assessment. The credential is earned on two timed drills, graded by the same engine that checks this course, and the drill score decides what it says you are capable of, from Foundation through to Distinction.
- Distinction90%+Works independently across all three core methods.
- Merit75%+Builds the core models with limited supervision.
- Pass60%+Understands the mechanics; works through a model with guidance.
- FoundationcompletedKnows the vocabulary and the shape of each model.