Multiple valuation: how to use ARR/revenue multiples and avoid mix-ups

What multiple valuation is doing

Multiple valuation estimates enterprise value by multiplying a metric (ARR or revenue) by a market multiple from comparable companies. It's fast and useful for scenario planning, but it requires clean definitions and context.

Key rules

• Match the multiple to the metric definition used by comps (ARR definition matters).
• EV multiples produce enterprise value; bridge to equity value using net debt.
• Use scenarios: multiples vary with growth, margin, and retention.

Common mistakes

• Comparing market cap (equity value) to EV/Revenue multiples (mismatch).
• Including one-time revenue in ARR and overvaluing the business.
• Ignoring retention and margin differences when picking a multiple.