Price to Earnings or GMV Multiple?
In a world when people also moved to Price to Sales, there is still underlying flaws to the exercise.
Almost a year back when every other day you were seeing a new tech company go public, there was some degree of insanity going around.
You see, with free money floating around everywhere, basic concepts of Corporate Finance were thrown out of the window and instead of price to earnings or price to free cash flow, new ratios started coming in.
Price to Sales became a very popular ratio.
In fact, another multiple floating around was GMV Multiple.
GMV stands for Gross Merchandise Value and people started valuing their businesses by giving a GMV multiple i.e. a number multiplied by the Gross Merchandise Value on their platform.
In this short clip I explain the key flaw with this whole approach and why Price to Earnings is still the king.
Also, don’t forget to share this video :)