Multiple consistency rule
Factual definition
The multiple consistency rule is to match a valuation multiple’s numerator and denominator to compatible economic claims and measurement bases. Enterprise value commonly pairs with revenue, earnings before interest and taxes (EBIT) or earnings before interest, taxes, depreciation and amortization (EBITDA); equity value commonly pairs with net income or book equity.
Align currency, period and accounting definitions.
Pair enterprise value with matching operating earnings
Hypothetical annual figures, in US$ millions: EBITDA of 5.83 × 8 gives enterprise value of 46.64, rounded to 46.6. Dividing the unrounded 46.64 by net income of 2.9 yields about 16.08x mathematically, but it mixes enterprise-value claims with equity earnings and is not a conventional price to earnings (P/E) ratio.
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| Measure | Calculation and meaning |
|---|---|
| Enterprise value | 5.83 × 8 = 46.64; rounded 46.6 |
| EV / EBITDA | 46.64 ÷ 5.83 = 8x |
| EV / net income | 46.64 ÷ 2.9 ≈ 16.08x; mismatched claim basis |
| P/E basis | Equity value ÷ matching net income |
Match consolidated earnings to all the claims on them
Hypothetical, US$ millions at one valuation date: a parent’s common equity value is 80, consolidated debt is 30 and surplus cash is 10. The parent consolidates a subsidiary it owns only partly; the market value of the outside owners’ noncontrolling interest is assumed to be 5.
Consolidated EBITDA of 15 includes 100% of that subsidiary’s EBITDA. With no other claims or adjustments, matching EV is 80 + 30 − 10 + 5 = 105, and EV/EBITDA is 7.0x.
Omitting the outside owners’ 5 would produce 6.67x by comparing an incomplete numerator with all of the subsidiary’s earnings. CFI explains this noncontrolling-interest adjustment.
Alongside the enterprise-versus-equity pairing described above, check ownership scope, lease treatment, trailing versus forecast periods and recurring adjustments before comparing two companies’ multiples. A correctly divided ratio can still be built from incompatible inputs.
Where Multiple consistency rule fits
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