Revenue Multiples and Sector-Specific Multiples

While earnings and book value multiples are intuitively appealing and widely used, analysts in recent years have increasingly turned to alternative multiples to value companies. For young firms that have negative earnings, multiples of revenues have replaced multiples of earnings. In addition, these firms are being valued on multiples of sector-specific measures such as the number of customers, subscribers, or even web site visitors (for new economy firms). In this chapter, the reasons for the increased use of revenue multiples are examined first, followed by an analysis of the determinants of these multiples and how best to use them in valuation. This is followed by a short discussion of the sector-specific multiples, the dangers associate....