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A measure of the impact of above-market return investments on a company's price/earnings multiple. It is equal to the return premium (relative to the expected market return) from new business investments divided by the product of the return on equity for existing businesses and the expected market return. A franchise factor of 2 indicates that the company's price/earnings multiple will increase 2 units for each unit gain in book value (in present value terms). An approach to the valuation of investments proposed by Martin Liebowitz and Stanley Kogelman. Comparison of the Economics Value Added (EVA) and Franchise Factor literature is often useful. See also Franchise Value, Growth Equivalent of Franchise Investments.
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