Valuation using multiples or relative valuation is a method of estimating the value of an asset by comparing it to the values assessed by the market for similar or comparable assets.
The process consists of:
- identifying comparable assets (the peer group) and obtaining market values for these assets.
- converting these market values into standardized values relative to a key statistic, since the absolute prices cannot be compared. This process of standardizing creates valuation multiples.
- applying the valuation multiple to the key statistic of the asset being valued, controlling for any differences between asset and the peer group that might affect the multiple.
Read more about Valuation Using Multiples: Valuation Multiples, Peer Group, Comparison of Commonly Used Valuation Multiples
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