There are a large number of multiples you can choose from to do a multiples-based valuation. Examples include PE or Price Earning multiple, EV/Cash flow, EV/EBITDA, EV/EBIT, EV/Eyeballs, PEG, Value/Barrel, EV/Sales, EV/EBIT, EV/sales, etc. What factors help you decide on the multiples you pick? Which ones do you use? Which ones should you avoid? Are some multiples better than others?
We discussed elsewhere that multiples closer to cash flows should be preferred to other multiples because cash flows drive valuation. However, how do you select the numerator? Show you be considering enterprise values or equity of something else?
Enterprise value multiples such as EV/EBIT and EV/sales multiples are considered better than equity multiples such as PE and PEG multiples because 1) enterprise value multiples are less influenced by accounting policies and 2) enterprise value multiples and not impacted by the capital structure changes (debt to equity ratios).