Series 79 practice questionmediumComparable Company Analysis
An investment banker is valuing a SaaS company with no positive EBITDA. Which valuation multiple would be most appropriate for the comparable company analysis?
- AEV/Revenue✓ Correct answer
- BPrice/Earnings
- CEV/EBITDA
- DPrice/Book Value
Explanation
Why A — EV/Revenue
For companies that are not yet profitable, earnings-based multiples like EV/EBITDA and P/E are not meaningful because the denominator would be negative. EV/Revenue is the most appropriate alternative as it values the company based on its top-line sales generation and is commonly used for high-growth SaaS companies that are investing heavily in growth at the expense of near-term profitability. Many SaaS companies are valued on revenue multiples with adjustments for growth rate and gross margin.
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