Trading multiples is a valuation technique used to value a company by comparing the company’s financial valuation metrics to those of its peers

Typically, the multiples are a ratio of some valuation metric (such as market capitalization, enterprise value) to some financial performance metric (such as sales, EBITDA, earnings), etc.

The basic idea behind this valuation technique is that companies with similar characteristics should trade at similar multiples, all other things being equal. Let's get a clear idea of how to use trading multiples for valuing a company.