Frequently Asked Questions
The Acquirer’s Multiple® is a stock screening website based on the investment strategy described in the book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market.
FAQs
It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization.
The Acquirer’s Multiple® is calculated as follows:
Enterprise Value / Operating Earnings*
It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations.
The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
Our enterprise multiple is calculated as follows:
Enterprise Value / OIBDP
It differs from the ordinary enterprise multiple because it uses operating income before depreciation* (OIBDP) in place of EBITDA. OIBDP is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating OIBDP from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”
The business owner uses the screeners as the launching pad for further research, examining each stock the way a classic, fundamental investor would: As a business. The business owner buys a stock in the screener only if it trades at a sufficiently wide discount to a conservative estimate of intrinsic value to provide a margin of safety, and passes otherwise.
The quantitative investor uses the screener to create a portfolio, and relies on the performance of the portfolio as a whole. The quantitative investor buys stocks from the screener without fear or favor, ignoring the particular ills facing any given stock, and ruthlessly play the odds, taking the long-term margin that the screener has offered over the market.
Read more in How to use the screeners.
Read more in Four steps to implementing a quantitative value investment strategy
It is calculated by multiplying the share price by the total shares outstanding.
All metrics use trailing twelve month or most recent quarter data.
It is calculated as follows:
Market Cap + Preferred Equity + Non-Controlling Interests + Total Debt - Cash and Equivalents
It is favored over market capitalization as a measure of the total cost to acquire a company because it includes additional liabilities–like debt, preferred equity and non-controlling interests–that must be taken on by the acquirer.
All metrics use trailing twelve month or most recent quarter data.
It is a substitute for EBIT.
Operating earnings are calculated as follows*:
Revenue - (Cost of goods sold + Selling, general and administrative costs + Depreciation and amortization)
Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings. By adjusting for the impact of interest and taxes, we can compare two company’s with different capital structures on a like-for-like basis.
Operating earnings differ from EBIT because the operating earnings figure is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
We use operating earnings* in place of EBIT.
Operating earnings is calculated as follows:
Revenue - (Cost of goods sold + Selling, general and administrative costs + Depreciation and Amortization)
Like EBIT, operating earnings is an estimate of the earnings flowing to the owners of a company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations.
Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings. By adjusting for the impact of interest and taxes, we can compare two companies with different capital structures on a like-for-like basis.
Operating earnings differs from EBIT because it is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–non-recurring income–ensures that this income is related only to operations.
We use operating earnings to calculate The Acquirer’s Multiple®.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
It is a substitute for EBITDA.
OIBDP is calculated as follows*:
Revenue - (Cost of goods sold + Selling, general and administrative costs)
It differs from operating earnings because it includes depreciation and amortization.
Like EBITDA, it is an estimate of the earnings flowing to the owners of the company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations. Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings.
It differs from EBITDA because it is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating operating income from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.
In addition to adjusting for interest and taxes, OIBDP also includes depreciation and amortization, which are non-cash accounting charges that reduce reported earnings. While depreciation and amortization represent real historical expenditures, to the extent they approximate real cash flows in any given year, management has discretion to direct those cash flows to other uses, like debt repayment or acquisitions.
By adjusting earnings for the impact of interest, taxes, depreciation, amortization, we can compare on a like-for-like basis two or more companies with different capital structures and accounting policies to see which is better value.
We use OIBDP to calculate our enterprise multiple.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”
We use operating income before depreciation and amortization (OIBDP) in place of EBITDA.
OIBDP* is calculated as follows:
Revenue - (Cost of goods sold + Selling, general and administrative costs)
Like EBITDA, OIBDP is an estimate of the earnings flowing to the owners of the company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations. Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings.
OIBDP differs from EBITDA because it is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating operating income from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.
In addition to adjusting for interest and taxes, OIBDP also includes depreciation and amortization, which are non-cash accounting charges that reduce reported earnings. While depreciation and amortization represent real historical expenditures, to the extent they approximate real cash flows in any given year, management has discretion to direct those cash flows to other uses, like debt repayment or acquisitions.
By adjusting earnings for the impact of interest, taxes, depreciation, amortization, we can compare on a like-for-like basis two or more companies with different capital structures and accounting policies to see which is better value.
We use OIBDP to calculate our enterprise multiple.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”
- The Large Cap 1000 universe contains the largest stocks by market capitalization. It is comparable to the Russell 1000. As at January 1, 2023, it contained about 1,000 stocks, the smallest of which had a market cap of about $8 billion.
- The All Investable universe contains the largest half of stocks by market capitalization. It is comparable to the Russell 3000. It includes the stocks in the Large Cap universe. As at January 1, 2023, it contained about 3,000 stocks with a median market cap of $1.8 billion, the smallest of which had a market cap of about $400 million.
- The Small and Micro Cap universe contains the smallest half of stocks by market capitalization. It excludes stocks traded over-the-counter. As at January 1, 2023, it contained about 1,000 stocks with a median market cap of about $400 million, the largest of which had a market cap of about $1.8 billion, and the smallest of which had a market cap of about $10 million.
For more, see the guide to the stock universes.
- Financials and Utilities: We’re including the Financials and Utilities sectors for the first time. To accommodate the new sectors, we’re making two additional changes.
- Expanding Number of Stocks: We’re expanding the number of stocks visible to the full dataset in the paid screeners. To increase the diversification of the screens, we’re showing the best six (6) opportunities in each industry. (If we don’t limit the opportunities to the top six in each category, there are too many stocks from some industries, particularly in the Financials sector, for example United States Banks, Investment Services, Specialty Finance and Insurance).
- Market Cap Cut-Off: We’re also increasing the Large Cap minimum market cap to $20 billion (The All Investable / Small and Micro cut-off is approximately $2 billion.)
For more, see the updates to the screeners.
Subscribe for access to The Acquirer’s Multiple® All Investable and Small and Micro Cap screeners, analysis and commentary on positions in the screens, discussions on investment and activist strategies, stock forums, and more
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Contact us
Questions? Feel free to email or call us.
- tobias@acquirersmultiple.com
- 646.535.8629
Disclaimer: acquirersmultiple.com is not an investment adviser, brokerage firm, or investment company. “The Acquirer’s Multiple®” is a term used to describe the investment strategy explained in the book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market. Use of the formula does not guarantee performance or investment success. acquirersmultiple.com is owned in part by Tobias Carlisle.
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