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Valuation Using Multiples - Accuracy and Error Determinants

Lillhage, Johan LU and Ek, Daniel LU (2012) BUSN88 20121
Department of Business Administration
Abstract
The purpose of this thesis is to investigate how accurate multiple valuations are in relation to the DCF. Furthermore, the accuracy of equity and entity multiples will be compared. Finally, we will try to determine the factors underlying the valuation errors.

Our results suggest similar performance from the multiples approach in relation to the DCF model in estimating corporate value with eight of ten multiples producing valuation estimates with valuation errors of less than 15 % compared to market value. However, EV/EBITDA which is the closest related multiple to the DCF is outperformed. The equity multiple Price/Earnings yield the most accurate estimation of corporate value. Finally, firm size and market to book ratio are connected... (More)
The purpose of this thesis is to investigate how accurate multiple valuations are in relation to the DCF. Furthermore, the accuracy of equity and entity multiples will be compared. Finally, we will try to determine the factors underlying the valuation errors.

Our results suggest similar performance from the multiples approach in relation to the DCF model in estimating corporate value with eight of ten multiples producing valuation estimates with valuation errors of less than 15 % compared to market value. However, EV/EBITDA which is the closest related multiple to the DCF is outperformed. The equity multiple Price/Earnings yield the most accurate estimation of corporate value. Finally, firm size and market to book ratio are connected to the valuation errors obtained from the multiples valuation approach. (Less)
Please use this url to cite or link to this publication:
author
Lillhage, Johan LU and Ek, Daniel LU
supervisor
organization
course
BUSN88 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
Valuation, Multiples, Accuracy, Error Determinants, Discounted Cash Flow model, DCF, Market Efficiency Hypothesis, Mispricing, Panel Data, Market to Book ratio, Firm Size, Volatility, R&D.
language
English
id
2798824
date added to LUP
2012-06-27 15:19:37
date last changed
2012-06-27 15:19:37
@misc{2798824,
  abstract     = {The purpose of this thesis is to investigate how accurate multiple valuations are in relation to the DCF. Furthermore, the accuracy of equity and entity multiples will be compared. Finally, we will try to determine the factors underlying the valuation errors. 

Our results suggest similar performance from the multiples approach in relation to the DCF model in estimating corporate value with eight of ten multiples producing valuation estimates with valuation errors of less than 15 % compared to market value. However, EV/EBITDA which is the closest related multiple to the DCF is outperformed. The equity multiple Price/Earnings yield the most accurate estimation of corporate value. Finally, firm size and market to book ratio are connected to the valuation errors obtained from the multiples valuation approach.},
  author       = {Lillhage, Johan and Ek, Daniel},
  keyword      = {Valuation,Multiples,Accuracy,Error Determinants,Discounted Cash Flow model,DCF,Market Efficiency Hypothesis,Mispricing,Panel Data,Market to Book ratio,Firm Size,Volatility,R&D.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Valuation Using Multiples - Accuracy and Error Determinants},
  year         = {2012},
}