Value: The Four Cornerstones of Corporate Finance

by Tim Koller

These days, sophisticated investors and bankers use forward-looking, enterprise value-to-EBITA multiples. These multiples provide a more apples-to-apples comparison of company values.

The forward-looking, enterprise value-to-EBITA multiple improves the simple P/E multiple that's reported in the newspaper or on a web site in three ways: it strips out nonoperating items, it eliminates the effect of different capital structures and, by using estimates of forward earnings, it more closely reflects the level of earnings over a company's business cycle.