Option-Style Multi-Factor Comparable Company Valuation for Practical Use

Matthias Meitner

No 03-76, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Classical single-factor comparable company valuation (CCV) like e.g. valuation using the price-earnings ratio is associated with several shortcomings. The two most important are the non-applicability of negative values in the basis of reference and the high requirements to the qualitative characteristics of comparable companies. This paper develops a multi-factor CCV model based on substance and performance related accounting attributes that largely overcomes these drawbacks. Additionally, the model allows to depict expected future earnings development economically sounder than single-factor models. Furthermore, by accounting for management?s option to adapt firm assets differently or to liquidate the company the model can conclusively assign positive stock prices to currently negatively performing companies.

Keywords: Valuation; Multiples; Real Options (search for similar items in EconPapers)
JEL-codes: G12 G31 M21 M41 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:1686

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