Over the years, valuation experts have distinguished patterns in the selling price of businesses and financial ration of relevant groups. These patterns, industry specific multiples, determine the current value of a company. Industry specific multiples are the techniques that demonstrate what business is worth. To evaluate the estimate of the value of the business one can use financial ratios such as:
- Enterprise value (EV) to gross revenues or net sales
- EV to net income
- EV to EBIT and EBITDA (earnings before interest, taxes, depreciation, and amortization)
- EV to seller’s discretionary cash flow
- EV to total business assets
- EV to owners’ equity.
One can use different combinations of these financial performances to calculate the estimate of the firms’ value for different industries. (See Table 1) For instance, EV/revenue multiple is used to evaluate value of various new industries. While EV/EBITDAR multiple is used when there are significant rental and lease expenses incurred by business operations.
Table 1 shows typical multiples used in firm valuation within an industry. Table 2 shows Enterprise Value multiples by industry.
Table 1
Selected Industry-Specific Multiples
| Multiple | Sector | Comments | |
| EV/Revenue | Various | Early stage companies | |
| EV/Subscriber | Various | Subscriber based businesses, such as Cable and Direct To Home (DTH) | |
| EV/EBITDA | Various | Many Industrial and Consumer industries, but not Banks, Insurance, Oil & Gas and Real Estate | |
| EV/EBITA | Various | Commonly used in several Media industry sub-sectors, Gaming, Chemicals and Bus & Rail Industries. | |
| Used when EBITDA multiples are less relevant due to significant differences in asset financing (e.g. mix of leases, rentals, ownership) | |||
| EV/EBITDAX | Oil & Gas | Excludes exploration expenses | |
| EV/EBITDAR | Retail, Airlines | Used when there are significant rental and lease expenses incurred by business operations | |
| EV/Reserves | Oil & Gas | Used when looking at Oil & Gas fields and companies heavily involved in upstream. | |
| Gives an indication of how much the field is worth on a per barrel basis | |||
| EV/Production | Oil & Gas And Airports | For producing fields, gives value on a barrel per day production basis | |
| For container ports, gives value per ton of cargo handled | |||
| For airports, gives value per passenger through airports | |||
| EV/Capacity | Oil & Gas | For refiners, gives a value metric in terms of barrel per day of refining capacity | |
| Market Cap/Book Value (“P/BV”) | Technology/ Banks/ Insurance | Used for Semiconductor industry. Book value of equity is used since there can be significant earnings fluctuation in this sector | |
| Bank’s shareholders equity is important because it is looked at as a buffer/protection for depositors | |||
| EV/FFO | Real Estate | Principally used in the US | |
| P/E | Various | Often using normalized cash earnings, excluding both exceptional items and goodwill amortization | |
| PEG ratio | High Tech, High Growth | Big differences in growth across companies | |
| (EV/EBITDA)/EBITDACAGR | High Growth | Used in Specialty Retail industry and when valuing emerging markets | |
| IPO candidates | |||
Table 2 (this data is as of January 2014)
Enterprise ValuesMultiples by Industry
| Industry Name | Number of firms | EV/EBITDA | EV/EBIT | EV/EBIT (1-t) |
| Advertising | 65 | 11.83 | 13.04 | 17.19 |
| Aerospace/Defense | 95 | 11.23 | 13.37 | 19.26 |
| Air Transport | 25 | 9.64 | 14.68 | 16.94 |
| Apparel | 70 | 14.12 | 16.03 | 21.31 |
| Auto & Truck | 26 | 11.72 | 24.07 | 30.59 |
| Auto Parts | 75 | 8.21 | 10.96 | 14.37 |
| Bank | 7 | NA | NA | NA |
| Banks (Regional) | 721 | NA | NA | 0.00 |
| Beverage | 47 | 13.95 | 16.89 | 21.82 |
| Beverage (Alcoholic) | 19 | 18.78 | 22.75 | 29.01 |
| Biotechnology | 349 | 22.87 | 49.96 | 73.29 |
| Broadcasting | 30 | 13.55 | 15.53 | 19.89 |
| Brokerage & Investment Banking | 49 | 9.48 | 3.82 | 5.25 |
| Building Materials | 37 | 14.47 | 19.68 | 27.37 |
| Business & Consumer Services | 179 | 12.52 | 16.55 | 25.12 |
| Cable TV | 16 | 9.01 | 14.27 | 21.05 |
| Chemical (Basic) | 47 | 9.58 | 14.64 | 21.59 |
| Chemical (Diversified) | 10 | 10.87 | 15.73 | 21.93 |
| Chemical (Specialty) | 100 | 10.82 | 13.30 | 17.80 |
| Coal & Related Energy | 45 | 9.28 | 43.19 | 52.41 |
| Computer Services | 129 | 9.51 | 11.06 | 14.43 |
| Computer Software | 273 | 12.67 | 15.09 | 18.91 |
| Computers/Peripherals | 66 | 8.61 | 10.65 | 14.20 |
| Construction | 18 | 20.69 | 47.51 | 59.68 |
| Diversified | 20 | 19.82 | 28.21 | 34.14 |
| Educational Services | 40 | 8.45 | 14.97 | 23.28 |
| Electrical Equipment | 135 | 12.24 | 15.17 | 22.23 |
| Electronics | 191 | 11.85 | 19.55 | 24.43 |
| Electronics (Consumer & Office) | 26 | 8.95 | 13.06 | 16.11 |
| Engineering | 56 | 9.65 | 11.36 | 16.48 |
| Entertainment | 85 | 12.61 | 15.10 | 21.41 |
| Environmental & Waste Services | 108 | 10.79 | 17.17 | 25.62 |
| Farming/Agriculture | 29 | 11.49 | 15.84 | 24.04 |
| Financial Svcs. | 76 | 13.67 | 15.14 | 23.25 |
| Financial Svcs. (Non-bank & Insurance) | 17 | 35.29 | 4.18 | 5.18 |
| Food Processing | 97 | 12.26 | 14.63 | 19.70 |
| Food Wholesalers | 18 | 10.73 | 12.96 | 20.40 |
| Furn/Home Furnishings | 36 | 11.25 | 14.87 | 17.81 |
| Healthcare Equipment | 193 | 10.64 | 13.58 | 16.02 |
| Healthcare Facilities | 47 | 9.15 | 13.14 | 17.58 |
| Healthcare Products | 58 | 15.42 | 27.54 | 32.77 |
| Healthcare Services | 126 | 9.36 | 11.12 | 17.07 |
| Heathcare Information and Technology | 125 | 17.65 | 26.27 | 31.99 |
| Heavy Construction | 46 | 10.48 | 13.75 | 19.91 |
| Homebuilding | 32 | 18.06 | 18.72 | 22.54 |
| Hotel/Gaming | 89 | 14.18 | 22.08 | 26.63 |
| Household Products | 139 | 12.54 | 15.03 | 20.84 |
| Information Services | 71 | 15.21 | 17.47 | 25.03 |
| Insurance (General) | 26 | 9.00 | 11.94 | 14.18 |
| Insurance (Life) | 27 | 14.35 | 15.21 | 18.89 |
| Insurance (Prop/Cas.) | 53 | 8.97 | 8.77 | 11.80 |
| Internet software and services | 330 | 22.80 | 33.63 | 43.49 |
| Investment Co. | 65 | 10.06 | 13.17 | 19.39 |
| Machinery | 141 | 12.03 | 14.84 | 19.85 |
| Metals & Mining | 134 | 8.75 | 13.94 | 21.06 |
| Office Equipment & Services | 30 | 10.06 | 12.73 | 18.95 |
| Oil/Gas (Integrated) | 8 | 6.53 | 9.39 | 15.81 |
| Oil/Gas (Production and Exploration) | 411 | 12.98 | NA | NA |
| Oil/Gas Distribution | 80 | 15.54 | 22.86 | 25.19 |
| Oilfield Svcs/Equip. | 163 | 8.63 | 11.21 | 15.57 |
| Packaging & Container | 24 | 9.12 | 12.86 | 17.04 |
| Paper/Forest Products | 21 | 9.70 | 15.67 | 18.27 |
| Pharma & Drugs | 138 | 11.54 | 15.60 | 19.92 |
| Power | 106 | 9.78 | 16.85 | 23.70 |
| Precious Metals | 166 | 5.37 | 16.69 | 18.50 |
| Publshing & Newspapers | 52 | 10.18 | 16.34 | 22.06 |
| R.E.I.T. | 46 | 7.41 | 23.81 | 23.77 |
| Railroad | 10 | 9.88 | 12.42 | 19.47 |
| Real Estate (Development) | 22 | 31.56 | 111.69 | 133.40 |
| Real Estate (General/Diversified) | 11 | 56.83 | 130.42 | 169.56 |
| Real Estate (Operations & Services) | 47 | 16.13 | 22.98 | 29.02 |
| Recreation | 70 | 11.75 | 15.99 | 20.32 |
| Reinsurance | 3 | 8.81 | 12.32 | 16.13 |
| Restaurant | 84 | 14.55 | 20.38 | 27.69 |
| Retail (Automotive) | 30 | 12.98 | 16.82 | 27.05 |
| Retail (Building Supply) | 7 | 12.11 | 16.33 | 25.83 |
| Retail (Distributors) | 87 | 13.15 | 14.26 | 21.17 |
| Retail (General) | 21 | 9.12 | 13.61 | 20.98 |
| Retail (Grocery and Food) | 21 | 10.08 | 22.34 | 32.43 |
| Retail (Internet) | 47 | 42.14 | 78.72 | 101.86 |
| Retail (Special Lines) | 137 | 11.94 | 16.17 | 25.35 |
| Rubber& Tires | 4 | 5.14 | 7.15 | 10.23 |
| Semiconductor | 104 | 10.24 | 17.20 | 21.07 |
| Semiconductor Equip | 51 | 14.09 | 31.59 | 42.39 |
| Shipbuilding & Marine | 14 | 13.04 | 21.01 | 34.18 |
| Shoe | 14 | 16.51 | 18.90 | 25.16 |
| Steel | 37 | 10.32 | 18.06 | 23.23 |
| Telecom (Wireless) | 28 | 14.62 | NA | NA |
| Telecom. Equipment | 131 | 11.65 | 14.63 | 17.30 |
| Telecom. Services | 82 | 7.42 | 15.81 | 18.47 |
| Thrift | 223 | 11.20 | NA | NA |
| Tobacco | 12 | 10.85 | 11.30 | 16.55 |
| Transportation | 22 | 15.35 | 24.08 | 36.00 |
| Trucking | 28 | 10.91 | 13.63 | 23.01 |
| Utility (General) | 20 | 9.38 | 15.02 | 21.50 |
| Utility (Water) | 20 | 10.90 | 16.07 | 23.70 |
| Total Market | 7766 | 11.45 | 17.93 | 24.15 |
