Revenue Growth Adjusted Multiple

As with the price earning ratio the place to begin the examination of revenue multiples is with the cross sectional distribution of price to sales and value to sales ratios across firms in the united states.

Revenue growth adjusted multiple. Revenue multiples 0 100 200 300 400 500 600 700 800 revenue multiple price to sales. All revenue is not created equal and revenue multiple captures a complex balance of a company s 1 growth prospects 2 profitability and 3 long term risk profile. The key to using revenue multiple responsibly is to have a strong understanding of the underlying unit economics of the business being valued. Figure 10 1 summarizes this distribution.

Valuation using growth adjusted multiples. In an efficient market it makes sense that investors should be willing to pay roughly the same amount per dollar of cash flow or earnings etc for two similar companies. Using comparable trading multiples is a common way to value a company or an asset.