A higher multiple is an expectation that must eventually be earned.
| Concept | Explanation | |---|---| | Price-to-sales | Equity value relative to revenue. | | Price-to-book | Equity value relative to accounting book value. | | EV/revenue | Enterprise value relative to revenue. | | EV/EBITDA | Enterprise value relative to EBITDA. | | EV/EBIT | Enterprise value relative to operating income after depreciation. | | Free-cash-flow yield | Free cash flow relative to equity or enterprise value, depending on the definition. |
Key idea: A higher multiple usually means the market expects better growth, quality, durability, or lower risk. The expectation must eventually be earned.