- Itisalsoeasiertoestimatemultiplesofrevenuesafter
growth rates have leveled off and the firm’s risk
profileisstable.Forbothyounganddistressedfirms,
thisismorelikelytobethecasefiveyearsfromnow
than it is today.
Assumingthatrevenuesfiveyearsfromnowaretobeusedto
estimate value, what multiple should be used on these
revenues?Wehavethreechoices.Oneistousetheaverage
multiplesofvaluetorevenuestodayofcomparablefirmsto
estimateavaluefiveyearsfromnowandthendiscountthat
value back to thepresent. Thus, if the average enterprise
value-to-salesratioofmorematurecomparablefirmsinthe
radio/satellitebusinessis1.5today,thevalueofSiriusinyear
5 can be estimated as follows:
Thisshouldbediscountedbackatthecostofcapitalof11.44
percent to the present to yield a value for the firm today.
Thesecondapproachistoforecasttheexpectedrevenue,in
fiveyears,foreachofthecomparablefirms,andtodividethe
currentfirmvaluebytheseforecastedrevenuesforeachfirm.
Thismultipleofcurrentvaluetofuturerevenuescanbeused
toestimatethevaluetoday.Toillustrate,ifcurrentvalueis
0.8 timesrevenuesin fiveyears for comparablefirms, the
value of Sirius can be estimated.