Valuation using multiples

The multiplier method ( multiples Comparable Company Analysis) at the company valuation is a relatively simple, commonly used by investment banks and equity analysts method to estimate the company's value.

In principle, it is assumed that certain revenue and operational metrics for the pricing of the companies listed on a stock exchange equity shall prevail. The most common multipliers are P / E ( price- to-earnings ratio, price-earnings ratio), EV / EBITDA ( enterprise value / earnings before interest, taxes, depreciation and amortization ), EV / EBIT (enterprise value / earnings before interest and taxes ). The creation of new multipliers, however, there are no limits, but care must be taken that the measure used in the denominator in the industry of the rated entity is important ( eg retail space at listed retailers ).

In practice, peer companies used for the calculation of the multiples mainly selected from the same industry, but it is possible / or proposed in the literature more, matching the value-determining factors must be ensured ( profitability, growth, risk) than on the industry affiliation. Here, from the selected number of comparable companies ( comparables, comps, peer group ) are formed the multiples. If you have calculated for each comparable company the multiplier (eg, EV / EBITDA ), an average is calculated ( or the median ) for this multiplier after all outliers were eliminated. This average is multiplied by the operational measure of the company to be valued (in this case EBITDA of the company). The result should be the implied enterprise value. Of course it makes sense to apply for each evaluation a certain number of multipliers.

In addition to operational metrics can be used for the multipliers method on book values ​​( Market to Book ratio - market value of equity / book value of equity ).

Although this method of business valuation is indeed to accomplish without much mathematical effort, a critical look at the result should always be thrown. The decisive factor in this evaluation is the quality of the data set of comparable companies.

Swell

• Valuation
• Business Valuation