In this workout we're asked to comment on the multiples shown below Well first thing to notice, we've got some EV revenue multiples and we've got some EV EBIT multiples In each of them, the EV stays static. We're always going to use the EV now However, the revenue figures go from your actual then to year 2 forecast, year 3 forecast (they're increasing) Same for EBIT, year 1 actual up to year 2 forecast, year 3 forecast, they're increasing as well When you see revenue or the EBIT i.e. your denominator in the multiple increasing Then we expect to see the multiple decreasing and we do see that, the revenue multiples come down and the EBIT multiple comes down as well But the year 2 to 3 multiple comes down nice and gradually in both cases But the year 1 to year 2 multiple sees a step change, a dramatic drop in the multiple The revenue multiple, it goes down from 3.2 to 2.7 And EBIT multiple goes from 16.2x to 13.4x So what's going on here? Clearly whatever is causing this step change is affecting both revenue and EBIT What we should do here, is investigate the year 1 figures for an acquisition during the year If we imagine that there has been an acquisition during year 1 then that means during year 2, the year 2 revenue is all of the acquirer and all of the target's numbers Year 3 includes all of the acquirer and all of the targets numbers But year 1 will include all of the acquirers numbers but maybe only part of the targets numbers Maybe 9/12 or 6/12 or 3/12 That means that where as year 2 includes all of the target and year 1 does not Year 1 is not providing a like for like comparison with year 2 and year 3 In order for us to solve this, we should recalculate the year 1 numbers as if the deal happened at the start of the year This will provide us with comparable numbers year on year on year and thus comparable multiples as well