Question

1. What would be the best valuation ratio for a start-up firm (generally anyway), why?

2. Why is book to market often thought of as a poor valuation ratio (give three reasons).
3. Discuss three (briefly) macroeconomic indicators.
4. Give an example of a supply shock a demand shock and explain whether your examples are systematic or idiosyncratic.

Answer 1

1.the best valuation ratio for a startup would be 'enterprise value to sales' as it with help to gain a fair idea about the total enterprise value and the revenue generation capacity of the organisation. Since in the initial stages it is not fair to assume that the start-up make any kind of profit so any profitability ratio would be better to ignore.

In the initial stages of a startup they will report high losses, because they are highly loaded onto debt, and they have been on their expansion programs, so profits are less likely to occur during initial phases of start-up firm.

Enterprise value of the firm will recognise all the Assets and all the long-term expenditure it is making in order to gain the market share and the revenue will recognise the sales generating capacity of the firm, so enterprise value to revenue would be the best indicator to judge the performance of a startup firm.