nor is it based on Cash Flow. Companies vary a lot. DreamWorks and Pixar are both hugely successful film companies, yet Pixar's P/E ratio is double that of DreamWorks, which again doubles that of TimeWarner.
The reason for that is the assumption of growth rate. While Pixar enjoys a pristine record of box hitter, DreamBox has yet to prove itself. Hence the difference of presumed growth rate, and different P/E ratio.
The multiple does offer a range for corporate value by comparing to similar companies in same industry though.
