themultiple cannotbe computed and thus lessbias in the
comparison process.
6 Theonlyfirmsthatweloseinthiscomputationarethose
wherethereisnoclearlyspecifiedrevenue,asisthecasewith
banksandotherfinancialservicesfirms,andyoungstart-up
companies with no commercial products.
Another differencebetweentheprice-to-sales ratioand the
otherequity multiplesis in thenature ofthe distributions.
UnliketheP/EandP/BVratiodistributionsthathavesharply
pronouncedpeaks,theprice-to-salesratiodistributionismore
uniformly distributed. In other words, there are wide
variationsacrosssectorsandthereisnotypicalprice-to-sales
ratio that applies across firms or sectors.
ANALYSIS OF EQUITY MULTIPLES
Thereare twokey questions thatwe needto addresswith
everymultiple.Thefirstrelatestothevariablesthatdetermine
thatmultipleandthesecondtotherelationshipbetweeneach
ofthevariablesandthemultiple.Inthissection,weconsider
both issues.
Determinants of Equity Multiples
InChapter7, welaidthegroundworkforanalyzingequity
multiplesbystartingwithastablegrowthdividenddiscount
modeland thenstating multiplesin termsoffundamentals.
Table 8.5reviews our findings.
TABLE8.5DeterminantsofEquityMultiples:Stable-Growth
Model