The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question – “What are valuation multiples?” Valuation multiples are simply just another mechanism by which you might be able to value related companies in an industry. If you’re going to value a company, you could value it based on free cash flow. You could value it based on its assets or the income that it produces from the assets. But oftentimes, you also see that companies are valued based on multiples. And so, multiples are a way to use related industries or related sectors and try to figure out a like kind valuation when the companies are not exactly at the same level, whether revenue wise or in their life cycle or a product wise. And so, it’s another metric that you can use for valuing. Oftentimes, you might hear that a company was sold at two times revenue. If their revenue for the year was $1 million, the company might have been sold for two times their annual revenue, so it was