Meaning & use
earnings multiple
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Meaning
nouncountablefinance
A figure showing how many times a company's yearly profit is contained in its share price or total value, used to judge whether it is expensive or cheap.
Grammar: Usually singular with an or the: the earnings multiple fell; a high earnings multiple.
Patterns
- an earnings multiple of number
- the earnings multiple of a company
The software firm trades at an earnings multiple of 30, far above the industry average.
Analysts said the earnings multiple looked too high for a slow-growing retailer.
Buyers often value a small business at a fixed earnings multiple, such as four or five times annual profit.
Word forms
| plural | earnings multiples |
|---|
Common combinations
- a high earnings multiple
- A high earnings multiple suggests investors expect fast growth.
- a low earnings multiple
- The bank trades on a low earnings multiple after its losses.
- apply an earnings multiple
- The advisor applied an earnings multiple of six to the owner's profit.
- earnings multiple of 15
- Shares changed hands at an earnings multiple of 15.
- industry earnings multiple
- Its price is close to the industry earnings multiple.
Synonyms and how they differ
- price-to-earnings ratio
- This is the more common full name and is the one printed in market data, while earnings multiple sounds a little more general and is often used when valuing whole companies.
- P/E ratio
- It is the abbreviated form of price-to-earnings ratio and is used in quick market talk rather than in careful explanations.
- valuation multiple
- It is a broader term that can be based on sales or cash flow, whereas an earnings multiple always uses profit.
Word family
Commonly confused: earnings multiple or earnings yield?
earnings multiple vs earnings yield
This is the reverse figure, profit divided by price, so it moves in the opposite direction to the earnings multiple.
Practice
A company with annual profit of $10 million is valued at $150 million. Its earnings multiple is:
Choose one answer.
Value divided by profit is 150 / 10 = 15. Option 150 is the value in millions, not the multiple.
Make it your own
Write a sentence using “earnings multiple”, then check it and compare it with the examples above.