Chapter 7

The Value Drivers

All value multiples are influenced by one or more primary value drivers (in addition to risk, which we will return to in a later chapter). Moreover, the value drivers of the respective multiples are unique or individual, i.e. they have a direct link to the specific variables building the concerned multiple. Typically, the simple rule of “the higher the level of value driver, the higher the level of value multiple” applies. Listed below are the most important (i.e. the primary) value drivers of the previously presented value multiples.

7.1 PRIMARY VALUE DRIVERS OF THE EV MULTIPLES

  • EV/Sales: expected operating margin (e.g. EBITDA%, EBITA%, EBIT%) and revenue growth, respectively
  • EV/EBITDA: expected growth in earnings before interest, taxes, depreciation, and amortization
  • EV/EBITA: expected growth in earnings before interest, taxes and amortization
  • EV/EBIT: expected growth in earnings before interest and tax
  • EV/FCFF: expected growth in free cash flow to firm
  • EV/TA: expected return on total assets1
  • EV/BEV: expected return on book operating/invested capital (i.e. expected return on book enterprise value)2
  • EV/FA: expected return on fixed assets3
  • EV/TFA: expected return on tangible fixed assets.4

7.2 PRIMARY VALUE DRIVERS OF THE P MULTIPLES

  • P/EBT: expected growth in earnings before tax
  • P/E: expected growth in earnings (after tax)
  • P/FCFE: expected growth in free cash flow to equity
  • P/BV: expected return on book value (of equity)5
  • P/ABV: expected return on ...

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