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Accounting-Based Valuation Using Market Multiples: The Case Of Cyclical Companies

Author

Listed:
  • Emanuel Bagna

    (Department of Economics and Management, University of Pavia)

  • Enrico Cotta Ramusino

    (Department of Economics and Management, University of Pavia)

Abstract

Accounting market multiples are more often used than studied. Equity analysts, investment bankers and other practitioners widely use accounting market multiples such as Price to Earnings, Enterprise Value to EBITDA to estimate the value of companies. Nevertheless, literature about multiples is not as rich as the wide use of these valuation tools would suggest. This paper, focusing on European listed companies, investigates how market multiples based on historical accounting measures can be used in the valuation of cyclical companies, a much less investigated research topic. We test the accuracy of multiples to understand whether their performance in valuing cyclical companies is better, worse or equal to the performance found in prior studies, where both cyclical and non cyclical companies are analyzed without distinguishing between them. We also attempt to verify whether the way in which multiples are calculated significantly affects the accuracy of estimation. Our aim is to develop a valuation approach consistent with valuation theory and helpful in everyday practice.

Suggested Citation

  • Emanuel Bagna & Enrico Cotta Ramusino, 2016. "Accounting-Based Valuation Using Market Multiples: The Case Of Cyclical Companies," DEM Working Papers Series 126, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0126
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0126.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Valutation; Valuation Multiple; Cyclical Companies;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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