Valuation method
Market approach: comparable companies and multiples
Values a company by comparing it with similar companies, using ratios such as EV/EBITDA or P/E.
When to use it
- Listed peers or recent transactions exist
- The company has positive revenue, EBITDA or earnings
- You want to check a DCF result
What you need
- Up to 50 comparable companies and their multiples
- The company's figures for the first forecast year
How it works, step by step
- 1
Choose the comparables
Pick companies with a similar business, size and risk.
- 2
Pick the multiples
EV/Revenue for early growth, EV/EBITDA or EV/EBIT for profitable companies, P/E for stable earnings, EV/Total assets for asset-based businesses.
- 3
Compute the values
Multiply the average or median of each multiple by the company's figure, then weight the results.
Worked example
A company with first-year revenue of 20 and EBITDA of 4. Its comparables have a median EV/EBITDA of 7.5× and EV/Revenue of 1.4×. Amounts in SAR million.
| Value from EV/EBITDA7.5 × 4.0 | 30.00 |
|---|---|
| Value from EV/Revenue1.4 × 20.0 | 28.00 |
| Average | 29.00 |
Use the median when a few comparables are far from the rest.
Methods in TaqeemTech
Use one or both methods and set their weights.
Average of comparables
The mean of each multiple across the comparables.
Median of comparables
The middle value of each multiple, which limits the effect of outliers.
Strengths · Limitations
Strengths
- Reflects how the market prices similar businesses today
- Easy to explain to clients and investors
- Needs fewer assumptions than a DCF
Limitations
- Truly comparable companies are hard to find
- Market sentiment can push multiples up or down
- Cannot be applied to negative earnings or EBITDA
How TaqeemTech helps
- Up to 50 comparables with five multiples each
- Empty multiples skipped automatically
- A weight for each multiple
Common questions
It depends on the sector and stage. EV/EBITDA is the most common for profitable companies; EV/Revenue suits fast growth before profit.
This guide explains general valuation practice and how TaqeemTech applies it. It is not investment, legal or tax advice. The valuation opinion belongs to the firm and the valuer who approve the report.
Prepare your next valuation in TaqeemTech
Sign up in minutes and invite your team for free.