Lesson 6 of 10 · All lessons in this module
- Price multiples and the method of comparablesVideo lesson
- The relative valuation process
- Justified multiples: forecasted fundamentals, PEG and regression
- P/E in depth: earnings yield, PVGO and normalized earnings
- Sales, dividend, cash flow and industry-specific multiples
- Enterprise value multiples, asset-based valuation and choosing a modelVideo lesson
- EV/EBITDA drivers and value-to-book multiples
- Choosing a peer group: industry and factor approaches
- Current, past and forward multiples, and terminal values
- Integrated cases: why multiples differ, the justified P/E and comparables
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 6 of 10 · 15 min
Enterprise value multiples, asset-based valuation and choosing a model
Enterprise value prices the whole business net of its cash, so EV multiples compare companies with different capital structures; asset-based models value a company as what it owns minus what it owes; and combining models guards against the weaknesses of each.
In short
- Enterprise value = market cap + preferred stock + market value of debt − cash and short-term investments. It approximates the cost of a takeover.
- EV/EBITDA is the most common EV multiple; EBITDA is usually positive even when net income is not. Operating income can replace EBITDA.
- Equity value from an EV multiple: EV − debt − preferred + cash.
- Asset-based value = market value of assets − liabilities − preferred. It works for companies with few intangibles and many current assets; it gives a floor when intangibles matter.
- Each model family has strengths and weaknesses, so analysts often use several and investigate where they disagree.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.