How to Estimate Additional Multiples From a Known Reference Multiple

You will find valuation multiples as ubiquitous tools used in business valuation. Professional appraisers, business owners and investors use all kinds of multiples to figure out a company’s value. Using them you can quickly compare a company to similar businesses whose values are known. Comparable business sales are a great source from which you can get such multiples.

But what if you have just one multiple, e.g. EV / Revenue and want to estimate others such as EV / EBITDA or EV / SDE? Read on to see how to bridge that gap, with clear numerical examples.

Understanding Valuation Multiples

A valuation multiple expresses a company’s value in relation to some financial metric. Here are the most common ones:

EV / Revenue or enterprise value to revenue
EV / EBITDA or enterprise value divided by earnings before interest, taxes, depreciation and amortization
EV / SDE or enterprise value relative to the company’s seller’s discretionary earnings

So the general formula for a valuation multiple is:

$\text {Valuation Multiple} = \frac {\text {Value Measure}} {\text {Financial Metric}} $

Note that this is simply a ratio of the company’s value measure divided by a selected financial metric.

Translating Between Multiples

Let’s say you have a reference multiple, e.g. EV / Revenue. Now you want to estimate another one such as EV / EBITDA. To do this you need to know the relationship between the metrics in the denominator of the formula. These are known as margins.

Use Margins to Bridge Multiples

Suppose you already know the EV / Revenue either from your company or a peer group. You also have the EBITDA margin, or EBITDA as a percentage of revenue. In this case you can estimate EV/EBIDTA by dividing the reference EV / Revenue multiple by the EBITDA margin:

$\text{EV/EBITDA} = \frac{\text{EV/Revenue}}{\text{EBITDA Margin}}$

and similarly for the SDE case, this time dividing by the SDE margin:

$\text{EV/SDE} = \frac{\text{EV/Revenue}}{\text{SDE Margin}}$

Numerical Example Step by Step

Let’s say you have this data for a company:

Enterprise value (EV): $100 million
Revenue: $50 million
EBITDA: $10 million
SDE: $8 million

Step 1: Calculate the Reference Multiple

You calculate this as the ratio of the company’s enterprise value divided by its revenue:

$\text{EV/Revenue} = \frac{100}{50} = 2.0x$

Step 2: Calculate the Margins

The margins for EBITDA and SDE are expressed as a percentage of revenue.

$\text{EBITDA Margin} = \frac{10}{50} = 20\%$

$\text{SDE Margin} = \frac{8}{50} = 16\%$

Step 3: Estimate Additional Multiples

Now calculate the EBITDA and SDE based multiples by dividing the reference EV / Revenue multiple by the respective margins:

$\text{EV/EBITDA} = \frac{2.0x}{0.20} = 10.0x$

$\text{EV/SDE} = \frac{2.0x}{0.16} = 12.5x$

Step 4: Cross Check the Results

Use the numbers in this example to calculate the EV / EBITDA and EV / SDE multiples directly:

$\text{EV/EBITDA} = \frac{100}{10} = 10.0x$

$\text{EV/SDE} = \frac{100}{8} = 12.5x$

Practical Application

This approach lets you estimate a range of valuation multiples from a single known reference, as long as you have the relevant margins. It’s especially useful when:

Only one multiple is available from market comps or industry reports
You want to quickly sanity-check implied multiples for your business

Note: The accuracy of this method depends on the reliability of your margin estimates and the comparability of your reference multiple to your target company’s profile.

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