The last step in the purchase price ratio analysis is to calculate the valuation multiples at the various transaction prices. Doing so allows us to refine our conclusions drawn in the previous step about what constitutes a reasonable offer price by comparing the multiples thus computed with multiples paid in comparable transactions.
For a given transaction price, you should generally observe that like multiples decrease from one year to the next as the denominator (e.g. revenue, EBITDA, etc.) increases year-over-year in healthy companies. For TargetCo, we see that this is not the case.