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Lesson 5 of 9 · 14 min
Sales, dividend, cash flow and industry-specific multiples
Beyond the P/E, analysts use sales, dividend and cash flow multiples, each with its own justified value from the constant growth model, plus industry-specific measures; each suits some companies and misleads for others.
In short
- Justified P/S = net profit margin × payout × (1 + g) / ( − g) = margin × justified trailing P/E.
- P/S is stable, usually positive and hard to manipulate, so it suits mature, cyclical and loss-making firms; but price is an equity claim and sales serve all capital providers, so use EV/Sales for leveraged firms.
- Dividend yield: trailing (annualized latest dividend), leading . Justified trailing yield = ( − g)/(1 + g); leading = − g.
- Justified P/FCFE = 1/( − g); V/FCFF = 1/(WACC − g). Cash flow multiples are harder to manipulate but swing with capex, working capital and (for FCFE) borrowing.
- Industry-specific multiples (EV per barrel of reserves, per subscriber…) track sector value drivers but cannot be compared across industries.
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