The multiples approach is a valuable tool used by investors and financial professionals to compare and contrast the values of otherwise similar companies. By using the same standardized metrics to evaluate companies in similar industries and at similar stages of development, analysts can determine which company is the best investment opportunity and make more informed decisions about which stocks to buy.

Enterprise value multiples are based on the company’s total enterprise value (TEV) as opposed to equity multiples which use only the stock price. The calculation of enterprise value takes into consideration the company’s debt and other liabilities thereby providing a more accurate measure of the value of a business. Commonly used enterprise value multiples are the enterprise multiple (EV/EBITDA) and the price/cash flow multiple (P/CF) both of which provide information about the company’s overall financial health.

Equity multiples provide shareholders with information about the company’s current stock price relative to its profitability and performance. The most commonly used equity multiples are the price-to-Earnings (P/E) ratio, the PEG ratio, the price-to-book (P/B) ratio and the price-to-sales (P/S) ratio.

The P/E ratio, commonly used by analysts and investors as a measure of the stock’s price relative to its earnings, can be calculated by dividing the current stock price by the company’s earnings per share. The PEG ratio, which is calculated by dividing the P/E ratio by the company’s growth rate, is a better measure of the stock’s value as it takes into account the company’s growth rate.

The price-to-book ratio measures the stock’s price relative to its assets by dividing the current stock price by the company’s book value per share. Book value is the company's total assets minus its total liabilities and is an indication of the value of the company’s underlying physical assets.

Finally, the price-to-sales ratio is used to measure the stock’s price relative to the company’s total revenue. This is computed by taking the current stock price and dividing it by the company’s total sales divided by the number of outstanding shares.

Given the different financial parameters of the various companies, it is difficult to compare their values without the use of the multiples approach. By using the same standardized financial metrics to evaluate companies, it provides investors and financial professionals with a more uniform way to compare and contrast the values of otherwise similar businesses. While the multiples approach is not a perfect solution, it is a valuable tool which can be used to help investors make more informed decisions when evaluating investment opportunities.