Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 21

Smith Co. is a firm specializing in financial advice for retired individuals. After some analysis, you have determined that an earnings multiplier of 7 is appropriate for this type of business. Smith’s most recent earnings totaled $250,000. What is the value of the firm based on the earnings multiplier?

Step 1 of 4

Value of the firm under Earning multiplier

It is an easy and readily method which is used in order to determine the value of the firm as per the earning multiplier. The concept of earning multiplier is same as price to earnings ratio concept that is P/E ratio. Under this concept future earnings should be taken on the discounting value and which help to find the company’s value.