Arevenue multiple measuresthe value ofthe equityor a
businessrelativeto therevenuesthat itgenerates.As with
othermultiples,otherthingsremainingequal,firmsthattrade
atlowmultiplesofrevenuesareviewedascheaprelativeto
firms that trade at high multiples of revenues.
While this ratio is inconsistentlydefined, itis still widely
used.Figure8.5summarizesthedistributionofprice-to-sales
ratios for U.S. companies in January 2006.
FIGURE 8.5 Price-to-Sales Ratios—U.S. Firms in January
2006
Oneadvantagethatrevenuemultipleshaveoverearningsand
bookvaluemultiplesisthattherearefarfewerfirmswhere