Valuation Multiples

Valuation multiples are tools investors and analysts use to assess a company's worth relative to a specific financial metric, like earnings or sales. For example, a company might be valued at 10 times its earnings, meaning its market price is ten times its profit. These multiples allow comparisons between companies in the same industry, helping determine if a company is overvalued or undervalued. They are useful because they condense complex financial data into a simple ratio, providing a quick snapshot of valuation in relation to performance, market position, or growth prospects.