Quick answer: A valuation multiple expresses a price as a ratio to a financial measure, such as enterprise value divided by EBITDA. Buyers use multiples to turn a company’s earnings into a price and to compare businesses. The multiple a company earns depends on growth, margins, risk, size and the quality of its revenue, and a multiple from one source applies to another business only when the measure and the company are comparable.
Key points
A multiple is an output of the market’s view of growth and risk, not a fixed price list. Two businesses with the same EBITDA can sell at very different multiples.
Match the multiple to the measure it was built on. An EV/EBITDA multiple applies to EBITDA, an SDE multiple to SDE, and neither applies to revenue.
Public-company multiples are a useful reference but describe larger, more liquid companies than most private businesses.
Apply a multiple to normalized earnings, and use a range, because buyers will negotiate both the earnings and the multiple.
What a multiple is
A valuation multiple is a ratio. It compares what a business is worth, or what a buyer pays for it, with a measure of what the business produces. If a buyer pays an enterprise value that equals six times EBITDA, the multiple is six. Multiples let buyers do two things quickly: convert a company’s earnings into an estimate of price, and compare the price of one company with others.
The multiple is not a rule. It is the market’s summary of everything that makes a business more or less attractive. A buyer who is willing to pay a high multiple is saying that the earnings are likely to grow, repeat and be reliable. A buyer who offers a low multiple is saying the opposite.
The common multiples
Different multiples serve different situations. The measure on the bottom of the ratio matters because it defines what the multiple can be applied to.
MultipleWhat it comparesWhere it is commonEV / EBITDAEnterprise value to earnings before interest, taxes, depreciation and amortizationEstablished, profitable companies of most sizesEV / EBITEnterprise value to operating profit after depreciationCapital-intensive businesses, where depreciation is a real costEV / RevenueEnterprise value to salesCompanies with small or unstable profit, or where profit is not the main driver of valuePrice / EarningsEquity value to net incomePublic companies and analysis of equity valueEV / SDEEnterprise value to seller’s discretionary earningsSmall owner-operated businesses sold to individuals
Enterprise value multiples are more useful for comparing businesses because they are not affected by how a company is financed. The guide to the bridge from enterprise value to equity value explains why. The comparison of SDE and EBITDA explains why an SDE multiple cannot be applied to EBITDA.
What drives a higher or lower multiple
Buyers pay more for businesses that look more certain and more profitable over time. Several factors consistently shape the multiple.
Growth. A business that is expanding commands more than one that is flat or shrinking, especially when growth is organic and sustainable.
Margins and their stability. Higher margins, and margins that hold in a downturn, suggest pricing power and cost control.
Revenue quality. Recurring revenue, long-term contracts and repeat customers earn more than one-time projects that must be won again each year.
Customer diversification. Reliance on a few customers lowers the multiple. The guide to customer concentration shows how.
Owner dependence. A business that runs without its owner is worth more than one that does not.
Size. Larger companies attract more buyers and cheaper financing, and tend to earn higher multiples.
Capital needs. A business that requires heavy reinvestment to maintain its earnings is worth less per dollar of EBITDA than one that converts earnings into cash.
Industry and cycle. Sectors with stable demand are priced differently from those that swing with the economy.
Market conditions. Interest rates, the availability of debt and the amount of capital seeking deals all influence what buyers will pay.
Illustrative example: Same EBITDA, different multiple
Two companies each have adjusted EBITDA of $2,700,000. Company A has many customers, recurring contracts and a management team that runs the business without the owner, and a buyer values it at 7.0x, or $18,900,000. Company B depends on two customers and on the owner for sales, and a buyer values it at 5.0x, or $13,500,000. The $5,400,000 difference comes entirely from risk, not from earnings. The multiples are invented to show the effect and are not benchmarks.
Where multiples come from
Evidence on multiples comes from three sources, and each has limits.
Public companies. Data on publicly traded firms is abundant and current. Aswath Damodaran of the NYU Stern School of Business publishes industry-level enterprise value multiples for US-listed companies, and the table below shows several groups as of January 2026 to illustrate how much they differ.[1] Public companies are larger, more liquid and more diversified than most private businesses, so their multiples describe a different risk profile.
Public-company reference data, United States, as of January 2026[1][2]
Damodaran industry groupUS-listed firmsEV / EBITDAEV / EBITEBITDA marginGross marginFood Processing7810.0x13.6x15.2%23.2%Business & Consumer Services15514.3x20.1x15.7%33.4%Building Materials4111.6x16.0x17.3%30.9%Machinery10516.2x21.0x19.6%37.5%Total Market (without financials)4,82216.9x25.7x17.4%34.4%
The multiples cover companies in each group that have positive EBITDA; the margins come from the same author's separate margin dataset for the same industry groups. Most private companies are smaller, less liquid and less diversified than these public companies, so private-company transaction multiples differ, and often sit below them. The industry groups shown are examples chosen to illustrate the spread, not a recommendation of any multiple for a particular business.
Private transactions. Prices paid for private companies are the most relevant evidence, but they are mostly confidential. Commercial databases collect reported deals and have gaps, so the data is thin for any particular size and industry. Analysts use it as one input.
Practitioner knowledge. Advisors who work in a sector regularly see what buyers are paying and why. That market knowledge is the hardest to measure and often the most useful, because it reflects recent deals and the reasons behind them.
Using public multiples with care
Public multiples are a useful reference when used as context. They show how the market values companies in an industry, and they show the relative position of one industry against another. They do not give the price of a private company. The usual reasons are size, liquidity, diversification and disclosure: a small private business has fewer customers, fewer buyers and less certainty about its numbers. Valuation professionals therefore adjust or discount public evidence for the differences, or rely more on transactions and judgment. The adjustment is a matter of analysis, which is why the overview of transactional valuation emphasizes weighing several kinds of evidence.
Applying a multiple correctly
Normalize earnings first. A multiple applied to unadjusted earnings produces the wrong answer. The add-back guide covers the adjustments.
Match the measure. Use the same definition of earnings that the multiple was built on.
Use a range. Present a low and a high case and know what separates them.
Consider the buyer. Strategic and financial buyers can justify different multiples for the same business.
Check against another method. A multiple is one lens. The guide to valuation methods explains how income and asset approaches test the result.
Common mistakes
Relying on a rule of thumb that ignores the features of the business.
Applying a public-company multiple directly to a private company.
Mixing EBITDA and SDE multiples.
Treating the multiple as the thing to negotiate while leaving the earnings figure unchallenged. Buyers negotiate both.
Ignoring what the multiple already reflects. A high multiple on a business that is expected to grow can be reasonable, and the same multiple on a stagnant one is not.
Frequently asked questions
What is a good EV/EBITDA multiple?
There is no single good multiple. It depends on the industry, the size of the business, its growth, margins and risk, and the type of buyer. A business that earns a higher multiple than its peers usually has growth, recurring revenue or low risk that the market rewards.
Why do small businesses sell for lower multiples than large ones?
Size usually brings diversification, management depth, access to financing and more stable earnings, which buyers pay for. Smaller businesses tend to carry more concentration and owner-dependence risk, and fewer buyers can afford them. The multiple reflects that risk.
Are rule-of-thumb multiples reliable?
They are a starting point at best. A rule of thumb averages many businesses and ignores the features that make a particular one worth more or less. Use it to sanity-check, not to set a price.
Do I use revenue multiples or EBITDA multiples?
EBITDA multiples are standard for profitable, established businesses. Revenue multiples are used where profits are small or unstable, such as high-growth companies, because they ignore profitability. For an owner-operated business with steady earnings, buyers will price on earnings.
Need a valuation you can use in a sale or acquisition decision?
The Impetus Group prepares transactional valuations from the standpoint of strategic and financial buyers. A valuation is a standalone engagement with its own scope and fee, and it can be the first step before a sale or acquisition process.
Related guides
Business Valuation Methods: Income, Market and Asset Approaches: The income, market and asset approaches to valuing a private company, the methods inside each, when each fits and how valuers reconcile the results.
SDE vs. EBITDA: Which Earnings Measure Applies to Your Business?: SDE adds back one owner’s pay to show what an owner-operator earns. EBITDA treats the owner’s role as a market-rate cost. Learn which measure fits your business.
EBITDA Add-Backs: What Buyers Accept and What They Reject: Learn which EBITDA add-backs buyers accept in a sale, which they reject, and how adjusted EBITDA changes enterprise value, with a worked illustration.
Customer Concentration and Valuation: How Buyers Price the Risk: Why buyers pay less for businesses that depend on a few customers, how they measure concentration, and what owners can do to reduce the discount before a sale.
Transactional Valuation: What It Is and How It Works: A transactional valuation estimates what a strategic or financial buyer would pay for a business. Learn what goes into one and how it differs from an appraisal.
Sources
Enterprise Value Multiples by Sector (US), data as of January 2026. Aswath Damodaran, NYU Stern School of Business. Accessed October 8, 2026.
Operating and Net Margins by Sector (US), data as of January 2026. Aswath Damodaran, NYU Stern School of Business. Accessed October 8, 2026.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.