IPO University

Valuation Multiple

An approach to valuing companies that relies on comparing a company's stock price to its income from operations, cash flow from operations, or earnings per share. The higher the multiple, the more richly valued the company is. Underwriters use valuation multiples of an IPO's peers, or comparables, to determine the appropriate level at which the IPO should be priced. Likewise, investors use valuation multiples to find a target price.