Enterprise value divided by revenue; the fallback multiple for companies with no profit yet, and a blunt one for anything else.
A revenue multiple assumes a future margin. Paying 8 times sales only makes sense if you expect a margin structure that turns those sales into enough profit, so the implied future operating-margin is the assumption to make explicit.
It is most defensible for recurring-revenue software, where gross margins cluster tightly, and least defensible across mixed business models where gross-vs-net-revenue conventions alone can move the multiple by ten times.
Example: Northwind Tools trades at $2.86B over $840M, 3.4 times sales. Northwind Cloud, carved out at an implied $1.9B on $210M of revenue, would be 9.0 times.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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