Valuation

EV/Revenue Multiple for High-Growth Companies Understanding when EV-to-revenue multiples apply to high-growth companies, how profitability and margin expectations set valuation ranges.

EV/Revenue Multiple: When and How to Use It The EV/Revenue multiple (Enterprise Value to Sales) values companies by revenue instead of earnings—essential for unprofitable or high-growth firms.

EV/Sales Multiple Enterprise value divided by total revenue, a valuation metric that compares a company's market value to its sales generation.

Excess Earnings Method A valuation approach that separates a business into its tangible assets and a capitalized stream of earnings above what those assets should generate.

Excess Return Approach to Dividend-Based Valuation Use excess return dividend models to decompose value into asset value plus returns on future dividends, bridging dividend discount and residual income approaches.

Excess Return DCF Model A reformulation of DCF valuation that separates invested capital from the present value of excess returns to isolate value creation.

Excess Return Model for Financial Firms A residual income valuation approach tailored to banks and insurers, using equity capital as the value-creation base.

Excess Return Valuation Values a firm as invested capital plus the present value of returns above the cost of capital, decomposing value into liability-free baseline and competitive advantage.

Exclusivity as a Real Option in Technology Licensing Exclusive technology licenses create option-like payoffs by granting the right to exploit an innovation in a defined market or geography. Real-options methods value the premium for exclusivity.

Exercise Price in Real Options: What Counts as the Strike Define exercise price in real options: the upfront cost to acquire the option (not operating costs), and how it parallels financial option strikes.

Exit Multiple Terminal Value A terminal value approach that projects year-N EBITDA or earnings and applies an assumed exit multiple, offering an alternative to perpetual growth formulas.

Expansion Option The value of being able to increase output or scale a business as a form of real option.

Explicit Forecast Period The number of years of detailed cash-flow projection in a DCF model before the terminal value assumption takes over.

Fade Rate in DCF Forecasting A decay schedule that gradually reduces growth or return rates as a firm converges toward steady-state equilibrium.

Fair Market Value vs Fair Value in Business Appraisal Fair market value vs fair value in business appraisal: legal definitions, why they differ, and which standard applies in tax, accounting, and litigation contexts.

Fama-French Five-Factor Model An extension of the Fama-French three-factor model that adds profitability and investment factors, further refining cost of equity estimates.

Fama-French Three-Factor Model An extension of CAPM that estimates cost of equity using market risk, company size, and value characteristics in addition to beta.

FCF Yield Multiple Free cash flow per share as a percentage of stock price, measuring the efficiency of capital return to shareholders.

First Chicago Method A scenario-weighted valuation approach that blends optimistic, base, and pessimistic outcomes to estimate startup enterprise value.

Football Field Valuation A presentation format that displays a range of valuation estimates from multiple methods as overlapping bars or intervals, visualizing the spread of reasonable values.

Forward EV/EBITDA Multiple How the forward EV/EBITDA multiple differs from trailing, and why analyst estimates affect its reliability for valuation.

Forward P/E Ratio A price-to-earnings multiple built on consensus estimates for the next twelve months, not reported past earnings.

Forward Price-to-Sales Ratio Forward price to sales ratio uses next-year revenue estimates to value companies before earnings improve. Compare to trailing P/S and apply to growth stages.

Franchise Value Approach Decomposes a P/E ratio into tangible book value and franchise factor, separating earned capital from growth opportunities.

Franchise Value Model A valuation decomposition separating tangible book value from the franchise value component that reflects expected excess returns.

Free Cash Flow to Equity Valuation A valuation method that values equity by discounting the free cash flows available to equity holders after debt payments at the cost of equity.

Free Cash Flow to Equity vs Dividends for Valuation Compare FCFE and dividends as numerators in equity valuation. Learn when free cash flow to equity vs dividends matters for fair value.

Free Cash Flow to Firm Valuation A valuation method that values the entire enterprise by discounting free cash flow available to all capital providers—both debt and equity—at the weighted average cost of capital.

Free Cash Flow Yield Valuation A simplified valuation approach that values a company based on the ratio of free cash flow to enterprise value, comparing to required yield or market yields.

Going-Concern Valuation A valuation approach that values a company as a living, ongoing business with indefinite life and future cash generation, as opposed to liquidation or broken-up value.

Gordon Growth Model The simplest discounted cash flow formula, which values a stock or firm assuming constant perpetual growth in cash flows or dividends.

Gordon Growth Model Assumptions and Limitations Understanding the core assumptions behind the Gordon Growth Model, including constant growth rates and why they often break down in real markets.

Gordon Growth Model Limitations and When It Breaks Down The Gordon Growth Model fails when growth rate approaches discount rate, terminal values turn negative, or dividend cuts occur. Learn its blind spots.

Gordon Growth Model When Equity Is Negative Why negative book equity breaks the Gordon Growth Model and what approaches analysts use to value dividend-paying firms in deficit.

Growth Option The value of future investment opportunities unlocked by completing a current project successfully.

Growth Options in Franchise Expansion Decisions Real options in franchise expansion embed call options on adjacent territories. Learn how option value shapes acquisition prices and expansion strategy.

Guideline Public Company Method Valuing a private company by applying trading and transaction multiples from public-market comparables, adjusted for size, control, and liquidity differences.

Guideline Transaction Method A valuation approach that benchmarks private-company worth against multiples paid in comparable M&A deals.

H-Model A dividend discount valuation formula that accommodates linear decline from initial high growth to stable perpetual growth.

H-Model Valuation A two-stage dividend model where growth declines linearly from a high initial rate to a stable perpetual rate, balancing simplicity with realism.

H-Model vs Two-Stage DDM: When Each Applies Compare H-model smooth decay versus two-stage DDM phase transitions for dividend discount modeling; guidance on growth-profile fit.

How DRIP Plans Affect Dividend-Based Valuation Dividend reinvestment plans change how analysts treat cash flows in dividend discount models; DRIPs defer cash but increase share count and future payouts.

How Growth Rate Assumptions Change a P/E Multiple The P/E multiple expands and contracts with changes in long-term growth assumptions. See how a 1% shift in growth rate compresses or widens valuation.

How Mean Reversion Affects Real Option Value Why commodity prices that revert to a mean reduce option value compared to random-walk assumptions, and how practitioners adjust valuations.

How Private Equity Funds Value Portfolio Companies Private equity funds use IPEV guidelines and multiple valuation methods—entry multiples, DCF, comparable transactions—to mark portfolio company values quarterly for NAV reporting.

How Revenue-Based Financing Affects Business Valuation Revenue-based financing valuation impact depends on repayment cap, duration, and equity-like treatment by acquirers. Learn how RBF changes enterprise value.

How Share Buybacks Affect Residual Income Valuation Understand how share buybacks reduce book value per share, alter ROE, and change the residual income spread that drives valuation—and whether buybacks create or destroy modeled value.

How to Calculate Cost of Debt in a DCF Step-by-step guide to estimating pre-tax and after-tax cost of debt for WACC, using yield-to-maturity, credit spreads, synthetic ratings, and market data.

How to Calculate Unlevered Free Cash Flow for a DCF Unlevered free cash flow strips out financing effects to value a company independent of its debt and equity mix. Learn the step-by-step calculation for DCF valuations.

How to Choose a Terminal Growth Rate Terminal growth rate sets the long-term assumption for cash flow growth beyond explicit forecast years; small changes drive outsized swings in DCF valuation.

How to Estimate the Residual Income Persistence Factor Methods to estimate the residual income persistence factor (omega), including regression-based and industry benchmark approaches.

How to Estimate Volatility for a Real Options Model Practical methods to estimate volatility for real-options valuation when the underlying asset is not traded, using proxies and simulation.

How to Value a Small Business With No Profit Learn how to value a small business with no profit using asset value, revenue multiples, and comparable transaction approaches when earnings are negligible.

Identifying the Underlying Asset in a Real Options Model In real-options valuation, the underlying asset value is the present value of future cash flows if a project succeeds. This foundational step is often overlooked and critically determines the option's value.

Illiquidity Discount in Private Company DCF Explains illiquidity discount private company DCF: rationale, empirical ranges (10–40%), and application to valuation.

Illiquidity Discount on a Private Equity Stake How to quantify the illiquidity discount when valuing a private company stake that cannot be freely bought or sold.

Implied Cost of Equity (DDM-Derived) The discount rate backed out from observed stock price and dividend forecasts, revealing what the market is implicitly assuming about required return.

Implied Dividend Growth Rate from Market Price Learn to extract the market-implied dividend growth rate from a stock's price and current dividend, revealing what investors collectively expect.

Implied Growth Rate The perpetual growth rate that a valuation model implies, working backward from a market price or given enterprise value.

Input-Switching Option in Manufacturing Valuation How the option to switch inputs in manufacturing creates real option value when a firm can substitute raw materials based on cost or supply.