Mulitples

Objective: define the comparable Companies (peer group) and identify differences in fundamentals

1. What is a comparable firm to the one to be valued? Fundamentals are more important than same sector (e.g. growth, capital intensity, profitability)

2. How can be adjusted for differences across firms on the fundamentals?

3. Point out and describe any differences in the firms’ fundamentals

Objective: identification and understanding of the key multiples to be used to value the company

1. Consistency check: both the value (numerator) and the standardizing variable (denominator) must relate to the same claimholders in the firm (i.e. Enterprise Value multiples vs. Equity Value Multiples)

2. Uniformity check: the variables used in defining the multiple should base on the same accounting policies and rules

Objective: understanding the cross-sectional distribution and behavior of the multiple

1. What is the mean and median of the selected multiples?

2. How large are the outliers to the distribution? How can we deal/explain the outliers? Analyze other factors such as thin trading activities, small capitalization, poor research coverage, small free float

3. How have the selected multiples changed over time?

Objective: define the fundamentals that determine and drive the multiples

1. What are the correlations of the multiple to growth and profitability?

2. How do changes in the fundamentals change the multiple?

1. Enterprise Value Multiple:

• Unit of Capacity

• Sales

• EBITDAR

• EBITDA

• EBITA

• EBIT

• Capital Employed: Capital Employed = Gesamtvermögen - Kurzfristige Verbindlichkeiten; ein Maß dafür, wie viel Kapital in das Geschäft investiert wurde und wird oft verwendet, um die Effizienz und Rentabilität des eingesetzten Kapitals zu bewerten.

1. Equity Value Muliples

• Net Income

• Net Income + growth

• Equity Book Value: Buchwert des Eigenkapitals=Gesamtvermögenswerte−Gesamtverbindlichkeiten

1. More intuitive

2. Better direct link to equity valuation

3. More reliable (estimating enterprise value involves

   more subjectivity, especially in the valuation of

   non-core assets)

4. More familiar to most investor (especially the PE

   ratio)

1. Allow the user to focus on statistics where

   accounting policy differences can be minimised

   (e.g. EBITDA)

2. Avoid the influence of capital structure on equity

   value multiples

3. More comprehensive (can be applied to the entire

   enterprise), more inline with a strategy view.

4. Wider range of multiples possible

5. Enables the user to exclude non-core assets