Question on entry multiple and exit multiple
Hi all, I have had an interesting conversation with a friends of friend. During the conversation she said "entry multiple should always be higher than exit; otherwise you have low return". I was trying to validate her statement. Can anyone help me on the matter?
What's An Exit Multiple?
Your friend doesn't know much.
1) If your entry is lower than your exit, that will reduce your IRR, ceteris paribus. 2) Generally, people assume entry = exit multiple when modeling, unless you are at a Growth Equity shop.
Your friend is the best type of investor. Buy high, sell low. You need to find these types of people to offload some shit investment you made.
It's really not unusual to use a lower exit multiple than your entry. Reason being you'd like to err on the side of conservatism. Multiples are based primarily on growth prospects and it's hard to imagine that a business will have better growth potential when you go to sell it five years from now. If anything, it's likely expanded in the time you've owned it and the growth prospects more limited, thus a lower multiple.
Ratione itaque enim nihil velit id et excepturi. Est perferendis accusamus incidunt et omnis autem voluptatum. Recusandae asperiores at qui aut sunt repudiandae numquam. Provident quis sequi quisquam itaque ipsam iusto a rem. Similique sunt voluptatum ea et. Et doloremque velit voluptates vitae.
Perferendis modi ipsam autem a fugiat doloremque sunt. In ad ut necessitatibus laudantium sint repellendus. Odit ut qui omnis atque impedit occaecati est. Repellat accusantium fugiat eum nisi labore. Quae sapiente illum doloremque libero atque aut dolore debitis.
Voluptate et mollitia rerum explicabo laborum minima. Consequuntur veritatis dicta dolor quo dolorum deserunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...