Theenterprisevalue-to-salesratio,in additiontoincreasing
withgrowthand decreasingasthecostof capitalincreases
will increase as the after-tax operating margin increases.
Allofthesemultiplescanbeexpandedtocoverahigh-growth
period, using the following two-stage firm valuation model:
where RIR is thereinvestment rate and kc is the cost of
capitalforthefirmwith potentiallydifferentvaluesforthe
high-growth and stable-growthperiods. As with the equity
multiples,all that willbe required isthat thevariables be
estimatedtwice—oncefor thehigh-growthphase and once
forthestable-growthphase.Forinstance,theEV/capitalratio
for a high-growth firm can be written as:
whereROCistheafter-taxreturnoncapital,estimatedforthe
high-growth (hg) and stable-growth (st) periods.