There are a large number of multiples you can choose from to do a multiples-based valuation. Examples include EV/Cash flow, EV/EBITDA, EV/EBIT, EV/Eyeballs, 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?
Multiples closer to cash flows should be preferred because cash flows should drive valuation. For example, EV/EBITDA or EV/EBIT is generally a better multiple than EV/Eyeballs or Value/Barrel or EV/Net income. EBITDA is considered a proxy for cash flows, and EBIT is closer to the cash flow figure than the number of visitors (eyeballs) or net income.
Enterprise value multiples such as EV/EBIT and EV/sales multiples should be preferred over equity multiples such as PE and PEG multiples. These enterprise value multiples are better because the capital structure changes (debt to equity ratios) do not impact these enterprise value multiples.
Inputs that are higher in the income statement are preferred. For example, sales, EBITDA, EBIT, etc., are chosen over net income because they will be less susceptible to manipulation than net income.
Availability of information is also another critical factor. For large companies in mature markets, a lot of information is available, and you can pick multiples closer to cash flows. However, you will have less information for private companies and newer businesses and may have to resort to multiples based on available information such as value per subscriber.