A valuation multiple needs a reason

Know the numerator and the denominator

An enterprise-value-to-EBITDA multiple compares the value of operations with a defined EBITDA measure. A price-to-SDE multiple can describe a different earnings basis and a different package of assets. Before comparing the numbers, identify exactly what each price and earnings figure includes.

Historical earnings, forecast earnings and a recent trading run rate are also different measures. A multiple calculated against a high forecast profit will appear lower than the same value divided by a lower historical profit. That arithmetic does not make the first business cheaper or the forecast more reliable.

What makes a comparable transaction useful?

An asking price is not a completed transaction

A listing shows what a seller is seeking. It does not establish the agreed price, whether the sale completed, what due diligence changed, or whether the buyer received seller finance or an earnout. Those distinctions are particularly important when public details are limited.

Consider two hypothetical offers with the same headline amount. One is paid entirely at completion; the other includes a substantial payment only if next year’s revenue is achieved. The face value may match, but timing and uncertainty differ. Treating both as identical evidence can distort a comparison.

Explain the selection and test the result

A supportable analysis sets out the evidence considered, reasons for excluding weak comparisons, and why the chosen approach suits the business. It should show how earnings adjustments and risk assumptions interact rather than presenting an unexplained industry average.

Sensitivity analysis can show how the conclusion changes when an assumption changes, but a wide table of possible values is not a substitute for a reasoned conclusion. If reliable market evidence is limited, the report should explain the limitation and consider whether another method provides a more useful cross-check.

• Use a consistent financial period and earnings definition.
• Check whether transaction prices include contingent payments.
• Explain differences rather than copying a sector headline.
• Avoid treating a published range as a guaranteed sale price.

General educational information. Examples are hypothetical and do not value a real business. The appropriate treatment depends on the purpose, evidence and agreed scope.