Do Not Use the Arithmetic Mean to Average Multiples

Business Valuation UpdateVol. 27 No. 4
April 2021
Gilbert E. Matthews, MBA, CFA
market comparables
regression analysis, market multiples, guideline transaction method, statistics

Summary

Valuation professionals should not use the arithmetic mean of multiples. It is mathematically incorrect because it gives excessive weight to high multiples. A multiple is an inverted ratio with price in the numerator. Therefore, the harmonic mean should be used as the appropriate measure of central tendency.