Ask the Fool Multiple Questions

QWhat’s a stock’s “multiple”? — D.W., Naples, Florida

AIt’s a ratio of two measures of a company. One of the most common multiples is the price-to-earnings (P/E) ratio, which is the stock’s current price divided by its earnings per share. Imagine Scruffy’s Chicken Shack (ticker: BUKBUK), trading at $80 per share. If it earned $4 per share over the past year, its P/E is 20 (80 divided by 4). It’s trading at a P/E ratio of 20.

There are also price-to-sales multiples, book-value multiples, cash-flow multiples and more. It can be helpful to compare a company’s multiples with those of its peers, to see whether its stock appears to be undervalued or overvalued. Nike, for example, recently sported a P/E ratio that was over 82, while Adidas’ was not quite 41. That suggests that Adidas is more attractively priced, though of course you’d want to assess many more factors.

QWhat’s the difference between a private company and a public one? — C.B., Bozeman, Montana

APublic companies have shares of stock available to trade on the open markets. They’re required to file quarterly earnings reports with the Securities and Exchange Commission, detailing revenue, expenses, debt loads, cash levels, taxes, income or losses — and much more. These reports are publicly available.

Privately held companies are not public — meaning average investors can’t buy shares of them. They also don’t have to reveal much about their operations and financial health. According to Forbes, the 100 biggest private companies in America include Koch Industries, Cargill, Deloitte, PricewaterhouseCoopers, Publix, Mars, H-E-B, Pilot Flying J, Enterprise Holdings (parent of the car-rental company), Bechtel, Cox Enterprises, Fidelity Investments, Bloomberg, SC Johnson, McKinsey & Company, Staples and Amway.