Bill Gurley: "investors commonly use shortcuts to determine valuations. 'Price earnings ratio' and 'enterprise value to EBITDA' are common shortcuts, with their own benefits and limitations. price/revenue multiple is the crudest valuation tool of them all."abovethecrowd.com/2011/05/24/all…
"Multiples are not valuation; they are shorthand for the process of valuation. The value of a financial asset is the present value of future cash flows.” Michael Mauboussin d2wsh2n0xua73e.cloudfront.net/wp-content/upl… For example, a P/E is only valuable if it successfully predicts future cash flows.
People get confused by things like John Malone inventing the term EBITDA to talk to markets about the business. His real management metric was levered free cash flow. google.com/amp/s/25iq.com… "It’s not about earnings, it’s about wealth creation and levered cash-flow growth."
