A valuation multiple is a ratio that compares what investors are willing to pay for a business with a measure of its financial performance. For example, if a company has an enterprise value of $500 million and EBITDA of $50 million, it trades at 10.0x EV/EBITDA.
Multiples provide a standard way to compare businesses of different sizes. A $10 billion company may look expensive next to a $2 billion company, but that conclusion could reverse once you compare each company’s value with its earnings or cash flow. Size alone tells you little.