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

Emanuel Bagna () and Enrico Cotta Ramusino ()
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Emanuel Bagna: Department of Economics and Management, University of Pavia
Enrico Cotta Ramusino: Department of Economics and Management, University of Pavia

No 126, DEM Working Papers Series from University of Pavia, Department of Economics and Management

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.

Keywords: Valutation; Valuation Multiple; Cyclical Companies (search for similar items in EconPapers)
JEL-codes: G12 G30 G32 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-10
New Economics Papers: this item is included in nep-acc
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