The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits)

by Aswath Damodaran

Table 4.3 summarizes the multiples and the key variables that determine each multiple, with the sign of the relationship in brackets next to each variable: indicates that an increase in this variable will increase the multiple, whereas indicates that an increase in this variable will decrease the multiple, holding all else constant. Table 4.3 Fundamentals Determining Multiples Multiple Fundamental Determinants PE ratio Expected growth(), payout(), risk() Price to book equity ratio Expected growth(), payout(), risk(), ROE() Price to sales ratio Expected growth(), payout(), risk(), net margin() EV to FCFF Cost of capital(), growth rate() EV to EBITDA Expected growth(), reinvestment rate(), risk(), ROIC(), Tax rate() EV to capital ratio Expected growth(), reinvestment rate(), risk(), ROIC() EV to sales Expected growth(), reinvestment rate(), risk(), operating margin()