Multiple expansion

A gain from selling a business at a higher multiple of earnings than was paid for it. It usually reflects market conditions rather than anything the owner did to the business.

Where you will meet it

Multiple expansion appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Set out the stages at which private equity invests and the ways it exits
  CFA Level I · Alternative Investments

  “Leveraged buyouts acquire mature, cash-generative businesses using substantial debt, and return comes from operational improvement, debt repayment and multiple expansion.”

• Identify what makes a company an appealing private investment target and where private owners add value
  CFA Level III · Private Markets Pathway

  “Debt paydown and multiple expansion also add value.”

• Explain the ways private equity managers add value
  CFA Level I · Alternative Investments

  “Multiple expansion means exiting at a higher earnings multiple than the entry multiple, which depends largely on market conditions rather than on anything the manager did.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary