When comparing enterprise value to sales ratios across
companies, we should be cognizant of differences in
marketingstrategiesandmargins.Ifwearenotcarefulabout
controllingforthesedifferences,wewillfindcompanieswith
low after-tax operating margins looking cheap on an
enterprise value-to-sales basis.
Tax Rates
Thetaxratepaidbyafirmdoesaffectitsvalue,andthrough
this value,alloftheenterprisevalue multiples.Theeffect,
though,isamplifiedonmultiplesofpretaxmeasuressuchas
EBITDA and revenues. Using the hypothetical firm in
Illustration9.2,weexaminetheeffectofchangingthetaxrate
(from the base case of 40 percent) on enterprise value
multiples inTable 9.8.
TABLE 9.8Tax Rates and Enterprise Value Multiples