What metric can be used to differentiate two companies that have identical profiles but varied growth rates?

The ability to differentiate between two companies that have identical profiles but different growth rates is crucial in valuation, especially in tech industries or sectors with high growth potential. The EV/Revenue multiple is particularly useful in this context because it provides insight into how much investors are willing to pay for each dollar of revenue generated by a company.

When companies have similar profiles, such as business models, market segments, and risk levels, revenue becomes a key differentiator, especially when growth rates deviate. Companies with higher growth rates are often rewarded with higher EV/Revenue multiples, reflecting investor expectations of future performance. This multiple allows analysts to assess how much revenue is translating into enterprise value based on growth potential.

In contrast, other multiples like EV/EBITDA and Net Income may not capture the future growth potential as effectively. Since EBITDA and Net Income can be influenced by different accounting practices and may not fully reflect operational efficiency in growth scenarios, they may not present a clear picture of the valuation gap driven by differing growth rates. Free Cash Flow multiples, while also a strong indicator of financial health, may be less relevant in comparing high-growth companies where reinvestment in the business is a priority, impacting short-term cash flows.

Therefore, the EV/Revenue multiple serves