Review: Profit Multiples

Today I wish to review an investing term called the Profit Multiple. The profit multiple comes up when investors are deciding between two or more investments, where the net investment or the amount invested is the close to the same, but eventual profit can be much different due to the profit multiple. Let’s look at the math.

First Investment Candidate Steemleo Token Leo
First, calculate Return on investment
The math works like this:
You buy 10 units of Leo Token for $4.00 per unit.
Total investment $40.00.
If the price rises to $5.00 and you sell your return on investment is $5 - $4 = $1
Profit $1.00
Profit/Cost or roughly
1$/4$ or 25%.

Second, calculate the profit multiple.
Now a multiple is the ratio of profit per unit.
It starts with you getting your invested capitol back, which is a multiple of one. You invested $4 and got at least $4 dollars back, then anything over that is added to one. In the this Example your profit was 25%, so your multiple was 1 plus 0.25 or 1.25.
So the Profit Multiple on Leo is 1.25. So for every dollar invested you expect to earn 1.33 $.

Second Investment Candidate Steem

First, calculate Return on investment
The math works like this:
You buy 10 units of Stem Token for $3.75 per unit.
Total investment $37.5
If the price rises to $5.00 and you sell your return on investment is $5 - $3.75= $1.25
Profit $1.25
Profit/Cost or roughly
1.25$/3.75$ or 33%.

Second, calculate the profit multiple.
Now a multiple is the ratio of profit per unit.
It starts with you getting your invested capitol back, which is a multiple of one.
You invested $3.75 and got at least $3.75 dollars back, then anything over that is added to one.
In the this Example your profit was 33%, so your multiple was 1 plus 0.33 or 1.33
So the Profit Multiple on Steem is 1.33 to 1.00. For every dollar you invest you expect 1.33 dollars profit. That’s your Profit Multiple.

Now when we compare a profit multiple of 1.25 to one of 1.33, the difference between them is $ 0.08 seems small, but when we Multiple the difference by 10-100-1000 the difference becomes significant.
Multiple by ;
Ten it’s 0.80,
One hundred it’s $8.00 dollars.
One Thousand it’s $80.0. dollars.
Ten Thousand its $800.0. dollars.
So as you can see a dull topic gets exciting at the end when we start to realize that multiples can mean very significant amounts of money.

The other area in cryptocurrency where we here this talked about is the ability of something to 3x, 10x or 100x. This refers to the ability of something to increase in price by 3 times, 10 times or 100 times. This is heard frequently when people are discussing mathematical probabilities of a cryptocurrency Token increasing in price.

For example: Steem is 20 cents, if it 10x’s the price goes to $2.00.

Another example: Bitcoin is $4,000.00, if it 3x’s it’s price goes to $12,000.00.

Sometimes you will hear people recommend an investment based on its current price and the ability of it to 10x or 100x.

For example
XRP is 2 cents, it”s ability to 10x to 20 cents or 100x to 2 dollars may make people invest in it, even if they know nothing about the project.

I am not recommending you invest that way, I just want you to understand the articles you read when you do your due diligence on a coin project, before you invest .

Summary:
Multiple is the ratio of profit per unit, which is an important term to understand when considering investing in a two items with different cost basis rising to the same price or two items with different prices and different profit targets. In the first Example your profit was 25%, so your multiple was 1 plus 0.25 or 1.25. In the second Example your profit was 33%, so your multiple was 1 plus 0.33 or 1.33. I use Profit multiples to compare similar asset vehicles which have the same success risk parameters.
We will talk more about profit multiple in items of assets with different cost basis and different target prices in a future article. In those cases discussions of multiples can get quite exciting. If you have questions or comments about your experiences please comment below.

Take care,
✍️ written by Shortsegments