Anyone can explain the below two statements from CFAI me please;
1) P/FFO multiples are generally lower for companies with higher leverage, all things equal
Higher leverage = higher interest expense = lower FFO = higher multiple, no?
2) The higher the expected growth, the higher the multiple or relative valuation
Higher expected growth = higher FFO & AFFO = lower multiple, no?
Thank you
Statements are empirical observations, not simple applications of formula (where you assume that the price is constant).
Companies with higher leverage will trade at a lower P/FFO due to higher risk that market assigns to them.
Companies with higher growth will trade at a higher multiple - for the same reason.
Both are really based on the same logic as equity multiples (e.g., P/E)
Got it! Thank you so much for the clarification.