Comparables and multiples

Question 1

What are multiples used for?

Answer 1

They allow us to estimate the value of a company using market information available for a panel of comparable firms

Question 2

What firms should we use to compute our multiples?

Answer 2

Firms that have similar sector characteristics as well as operating ones, such as ROE and growth expectations

Question 3

Are multiples calculated on long or short-term periods?

Answer 3

Short

Question 4

What happens to samples that have widely disparated levels of margins?

Answer 4

EBITDA multiples tend to overvalue companies with low margins and undervalue the ones with high margins

Question 5

What are the 3 types of multiples?

Answer 5

• Current –> market price and most recent fin info
• Leading –> mkt price, expected return in following years
• Trailing –> comparisons of the last 12 month performance