Valuations are generally a multiplier of yearly revenue, which makes sense. Valuations are, on paper, what you'd buy a company for, and in the old school look of things, how much the company made per year was a good metric, and you'd multiply it by several years, since you'd probably not buy it as a super short term investment.
Now, the actual multiplier values used for that... we can debate them for ages :-)
Old school valuations are based on NPV discounts of future cash flows. That obviously includes profit, but also all the other factors around growth and drag along. You'd never get any of the valuations we see today based only on x'ing profit, even for the oldest of old school businesses.
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Valuations are generally a multiplier of yearly revenue, which makes sense. Valuations are, on paper, what you'd buy a company for, and in the old school look of things, how much the company made per year was a good metric, and you'd multiply it by several years, since you'd probably not buy it as a super short term investment.
Now, the actual multiplier values used for that... we can debate them for ages :-)
Old school valuations are based on profit not revenue. Which inherently avoided selling dollars for pennies.
Valuations based on revenue are essentially arbitrary because they are always based on models of potential rater than actual performance.
Old school valuations are based on NPV discounts of future cash flows. That obviously includes profit, but also all the other factors around growth and drag along. You'd never get any of the valuations we see today based only on x'ing profit, even for the oldest of old school businesses.
Sure, you can specify things as estimates of future profit based on past profit adjusted for risk, growth, NPV, and whatnot.
However my point was these calculations are at their core core based on profit.