You are right. And the real practice is a little more complicated. You would like to first adjust for the public company's debt, to make the comparison on all equity basis. And most people prefer EBITDA to net income because the unpredicatable nature of tax and other one-time charges. Most likely you need industry multiple derived from a series of comparable public companies. Comparable past M&A transaction price multiples are also very useful. A word of caution, the money is the final price resulted from the negotiation of two parties. A lot more is beyond valuation.
