Valuation Using Industry Multiples: How to Choose the Most Relevant Multiples

Edouard Chastenet () and Alain Marion ()
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Edouard Chastenet: MAGELLAN - Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon
Alain Marion: MAGELLAN - Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon

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Abstract: Our research focuses specifically on the methodology to be applied to improve the relevance of the multiples-based valuation method regarding the identification of the most relevant multiples (i.e., that reduce the relative absolute valuation error within any industry-based peer group). In line with prior empirical studies, our results confirm that Enterprise Value multiples based on EBIT and EBITDA perform better, compared to Sales and Capital Employed, and that multiples based on forward-looking EBIT and EBITDA are more relevant compared to corresponding actual earnings. In the absence of forward-looking earnings, available at the date of valuation, our study shows that EBITDA multiples provide better estimates than EBIT multiples do. Beyond these general results, the approach implemented in our research can be easily reproduced by practitioners (e.g., financial analysts, M&A advisors, independent appraisers) to identify case-by-case the multiples that are the most relevant within any industry-based peer group.

Keywords: Industry; Multiples (search for similar items in EconPapers)
Date: 2015-12
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Citations: View citations in EconPapers (2)

Published in Business Valuation Review, 2015, 34 (4), pp.173-183. ⟨10.5791/0882-2875-34.4.173⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01279438

DOI: 10.5791/0882-2875-34.4.173

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