01 /
Match the multiple to the financial measure
Revenue, EBITDA, EBIT and net profit are different figures. A multiple drawn from one measure cannot be applied to another as though they are interchangeable. Check the period, accounting treatment and whether the comparison relates to enterprise value or equity value.
Our valuation methods guide puts market comparisons alongside income and asset approaches. The choice should reflect the business and the evidence available.
02 /
Explain adjustments to earnings
Owner remuneration, unusual income and genuinely non-recurring costs may need investigation. Keep the reported result visible, list each proposed adjustment and record the evidence and reasoning. Removing a cost from a spreadsheet does not make it disappear for the next owner.
Ask whether the adjusted result can be sustained. Replacement management, maintenance investment and customer concentration may affect the commercial picture.
03 /
Check whether the comparison is comparable
Business size, growth, margins, recurring income, concentration and reliance on particular people can differ materially. Transaction dates and deal terms matter too. A price including deferred or conditional payments needs careful comparison with an amount paid at settlement.
A published sector range is a starting point for questions, not a valuation of your business. Our revenue guide illustrates how similar turnover can hide different economics.
04 /
Read rates and multiples consistently
In a simple capitalisation calculation, value equals maintainable earnings divided by the capitalisation rate. A rate of 25% corresponds mathematically to a multiple of four on the same earnings basis. This relationship is not a recommendation of either figure for a particular business.
Ask how the rate or multiple was selected and test the assumptions that could change it. An independent valuation brings the purpose and supporting analysis together.
Use this in your business
Before using a quoted multiple
| Check | Evidence needed |
|---|---|
| Measure | Exact definition of the revenue or earnings figure. |
| Period | Historical, forecast or another stated period. |
| Adjustments | A reconciliation with the original accounts. |
| Comparison | Business risks, scale, growth and date. |
| Value basis | Enterprise or equity value; treatment of debt and cash. |
| Terms | Upfront, deferred and conditional consideration. |
A practical example
A hypothetical calculation
If an illustrative business has maintainable earnings of $200,000, multiplying by four produces $800,000. Dividing the same earnings by 25% gives the same arithmetic. Neither calculation proves that the earnings are maintainable or that the selected rate reflects the business's risks. Those are the substantive valuation questions.
Your next move
Review the assumptions behind your value discussion
Bring the earnings figure and the multiple you have been given. We can help unpack the assumptions before that number drives an ownership decision.
Review the assumptions behind your value discussion