over the next five years was a consensus estimate from
analysts,andthereinvestmentratewasalsocomputedusing
numbersfromthemostrecentfinancialyear.Every 1 percent
difference in after-taxoperating marginsacross companies
results in a difference of 0.855 in the EV/sales ratio.
Forward Revenues
Withboth sectorand market comparisons,enterprise value
multiples canbe measuredin termsof future revenues or
operatingincomeinsteadofcurrentnumbers.Thus,wecould
estimatethevalueasamultipleofrevenuesfiveyearsfrom
now.Thereareadvantages todoing this, atleastforsome
firms.
- Foryoungfirmsthathavelittleinrevenuescurrently
but are expected to grow rapidly over time, the
revenuesinthefuture—sayfiveyearsfromnow—are
likelyto betterreflectthefirm’struepotentialthan
revenues today do. Consider, for instance, the
valuationofSiriusSatelliteRadioinIllustration6.5
in Chapter 6, where therevenues are projectedto
growfrom$187millioninthecurrentyearto$4.535
billion in year 5. Usinga multiple on the current
revenueswillbedifficulttodo,butitmaybeeasier
to workwith expectedrevenuesfiveyears intothe
future. Another category of firms where forward
multiples are useful are distressed firms that are
losing moneycurrently.Sinceno earningsmultiple
can be applied to negative earnings, forecasting a
future earnings number (which is positive) and
applying a multiple to itwill yield an estimate of
value.