Valuation using multiples

So, imagine you have some toy cars and you want to sell them to your friend. How do you know how much you should charge your friend for the toy cars? You can't just guess, right? So you look at how much other kids in your school are selling their toy cars for.

This is kind of like how people figure out the value of a company using multiples. Instead of toy cars, they look at other companies that are similar to the one they want to value. They see how much those companies are worth, and use that information to figure out how much the company they're interested in is worth.

But how do they compare the companies? Well, they look at things like sales, profits, and assets. These are called "multiples" because they're like little math equations that show how one company compares to another.

For example, if one company has sales of $10,000 and another company has sales of $20,000, the second company has "multiple" of 2x the first company's sales. This means it's worth more because it sells more stuff.

So, when people want to figure out how much a company is worth, they look at things like its sales, profits, and assets, and compare that to other companies that are similar to it. Then they use those comparisons, or "multiples," to figure out how much the company is worth.