Valuation Multiple
Also known as: Multiple, EV/EBITDA, EV/Revenue
Definition
A valuation multiple expresses enterprise value relative to a financial metric such as EBITDA, revenue, ARR, or gross profit. The multiple reflects growth, margin, revenue quality, retention, market position, transferability, risk, and buyer demand.
Multiple is the output, not the strategy. Founders often chase the headline comparable without fixing the operating risks that determine whether a buyer believes the company deserves it.
The controllable levers are usually revenue quality, margin durability, customer concentration, management depth, technical debt, and transferability.
Related terms
- ARR and MRR — Annual recurring revenue and monthly recurring revenue. The recurring-revenue base that buyers normalize before valuing a software or tech-enabled services company.
- EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization. The proxy for operating cash flow that PE buyers use to set valuation multiples.
- Normalized EBITDA — EBITDA adjusted for non-recurring, owner-related, accounting, or transaction-specific items to estimate sustainable operating earnings.
Where this gets applied
- Unit Economics — CAC payback, NRR, gross margin by segment, cohort analysis, paid-on-bookings vs. paid-on-cash.
- Financial Infrastructure — ARR waterfalls, deferred-revenue rules, board-pack standardization, FP&A architecture.
- Exit Readiness — Pre-LOI cleanup. Financial reporting normalization, contract hygiene, IP assignment review, customer-concentration mitigation.