Practice Question
In which analysis are multiples typically used?
Answer +
A
Step-by-step solutions +
Step 1: Understand what "multiples" means in finance.
Multiples are valuation metrics that relate a company's value to a key financial metric, such as earnings or sales. Examples include P/E (Price-to-Earnings), EV/EBITDA, and P/B (Price-to-Book).
Step 2: Identify where multiples are commonly applied.
They are used in relative valuation, which involves comparing a company to peers or market benchmarks. This helps analysts determine if a company is undervalued or overvalued.
Conclusion: Multiples are typically used in relative valuation analysis to assess how a company's value compares to others.