Home Value Investing Enterprise versus Equity Multiples

Enterprise versus Equity Multiples

There are two basic types of multiple that an investor has at his disposal – enterprise and equity multiples.

Definitions

From the UBS Warburg report:

Enterprise multiples express the value of an entire enterprise. That is the value of all claims on a business – relative to a statistic that relates to the entire enterprise, such as sales or EBIT.

Equity multiples, express the value of shareholders’ claims on the assets and cash flow of the business. An equity multiple therefore expresses the value of this claim relative to a statistic that applies to shareholders only. This includes earnings (after payments to creditors, minority shareholders and other non-equity claimants).

The concept is important here, because it tells us why a multiple like Enterprise value/Net Income does not make sense. Net income is the shareholders claim of earnings, but enterprise value is the value of all claims on a business.

Enterprise versus Equity Multiples

Equity multiples vs enterprise multiples

Most Common Uses

Enterprise multiples: EV/EBITDA, EV/EBIT, EV/NOPAT, EV/IC

Equity multiples: P/E, P/B, PE to earnings growth

Final Words

Based on the pros and cons of enterprise versus equity multiples, investors should be more equipped in picking the right choice for their investment analysis. Happy investing!

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I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.

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