Inthethirdapproach,we canadjustthemultiple offuture
revenuesfordifferencesinoperatingmargin,growth,andrisk
between thefirm being valuedand comparable firms. For
instance,Siriusfiveyearsfrom nowis projected(based on
ourestimates)tohaveanexpectedoperatingmarginof6.23
percent and an expected growthrate in revenues of 14.35
percentoverthefollowingfiveyears(years 6 through10).A
regression ofvaluetosales ratioagainstoperating margins
andexpectedgrowthratesrunacrosscomparablefirmstoday
yields the following:
Plugging in the predictedvalues for expected growth and
operating margins for Sirius into this regression:
ThevalueofSiriusinfiveyearscannowbeestimatedusing
this multiple.
While theuseofforward multiplesand futurerevenuesor
earningsisreasonableforyoungordistressedfirms,thereare
somepitfallsthatcanbeavoidedifwefollowafewsimple
precepts: