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Valuation using multiples. How do analysts reach their conclusions?


  • Fernández, Pablo

    () (IESE Business School)


This paper focuses on equity valuation using multiples. Our basic conclusion is that multiples nearly always have broad dispersion, which is why valuations performed using multiples may be highly debatable. We review the 14 most popular multiples and deal with the problem of using multiples for valuation: their dispersion. 1,200 multiples from 175 companies illustrate the dispersion of multiples of European utilities, English utilities, European construction companies, hotel companies, telecommunications companies, banks and Internet companies. We also show that PER, EBITDA and Profit after Tax (the most commonly used parameters for multiples) were more volatile than equity value during the period 1991-1999. We provide additional evidence of the analysts' recommendations for Spanish companies: less than 15% of the recommendations are to sell. However, multiples are useful in a second stage of the valuation: after performing the valuation using another method, a comparison with the multiples of comparable firms enables us to gauge the accuracy of the valuation and identify differences between the firm valued and the firms it is compared with.

Suggested Citation

  • Fernández, Pablo, 2002. "Valuation using multiples. How do analysts reach their conclusions?," IESE Research Papers D/450, IESE Business School.
  • Handle: RePEc:ebg:iesewp:d-0450

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    References listed on IDEAS

    1. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
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    Cited by:

    1. Juhász Jácint & Kovács Imola & Kovács Ildikó, 2010. "Comparable Valuation Method - A New Approach. Case Study: A Romanian Flexographic Printing Firm," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 571-577, December.
    2. repec:prg:jnlefa:v:2017:y:2017:i:2:id:183:p:91-103 is not listed on IDEAS
    3. Meitner, Matthias, 2003. "Option-Style Multi-Factor Comparable Company Valuation for Practical Use," ZEW Discussion Papers 03-76, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Jacek WELC, 2014. "Impact of Earnings Smoothness on Stock Prices, Stock Returns and Future Earnings Changes - the Polish Experience," European Financial and Accounting Journal, University of Economics, Prague, vol. 2014(3).
    5. repec:wsi:rpbfmp:v:16:y:2013:i:03:n:s021909151350015x is not listed on IDEAS

    More about this item


    Dispersion of multiples; relative multiples; analyst recommendations;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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