Equity Valuation Using Multiples: An Empirical Investigation

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ContentsForeword............................................................................................................ IIIPreface.................................................................................................................. VExecutive summary..........................................................................................VIIBrief contents.................................................................................................. VIIIContents ............................................................................................................... XList of figures...................................................................................................XIVList of tables...................................................................................................... XVNotations and abbreviations ..........................................................................XVI1 Introduction .....................................................................................................11.1 Motivation.................................................................................................11.2 Research idea ............................................................................................51.2.1 Research questions for the theoretical part ..................................51.2.2 Research questions for the empirical part....................................71.2.3 Research design of the empirical study .....................................101.3 Outline of the book .................................................................................112 Literature review ...........................................................................................132.1 Coverage in standard literature...............................................................132.2 Empirical research ..................................................................................152.2.1 Valuation accuracy of the multiples valuation method .............152.2.2 Selection of value relevant measures.........................................162.2.3 Identification of comparable firms.............................................172.2.4 Industry-preferred multiples ......................................................192.2.5 Combination of multiples ..........................................................192.3 Contribution to prior research.................................................................20
ContentsXI3 Theoretical foundations................................................................................ 223.1 Theoretical concept of fundamental equity valuation models ............... 223.1.1 Dividend discount model........................................................... 233.1.2 Discounted cash flow model...................................................... 243.1.3 Residual income valuation model ............................................. 273.1.4 Abnormal earnings growth model ............................................. 293.2 Derivation of intrinsic multiples............................................................. 313.2.1 Intrinsic P/E multiple derived from the DDM........................... 323.2.2 Intrinsic EV/EBIT multiple derived from the DCF model........ 333.2.3 Intrinsic P/B multiple derived from the RIV model.................. 353.3 Market multiples..................................................................................... 383.3.1 Definition and categorization of market multiples.................... 383.3.2 Common equity value and entity value multiples ..................... 413.3.3 Alternative multiples ................................................................. 433.3.4 Trailing and forward-looking multiples .................................... 474 Comprehensive multiples valuation ............................................................ 484.1 The standard multiples valuation method and its criticism.................... 484.1.1 Concept of the multiples valuation method............................... 484.1.2 Four step valuation process ....................................................... 494.1.3 Strengths and weaknesses of the standard multiples method.... 534.2 Selection of value relevant measures ..................................................... 564.2.1 Equity value versus entity value multiples................................ 574.2.2 Industry specific multiples......................................................... 624.2.3 Time reference of value drivers................................................. 654.2.4 Criteria for the selection of value relevant measures ................ 664.3 Identification of comparable firms......................................................... 684.3.1 Industry classification systems .................................................. 694.3.2 Assessment of comparability..................................................... 704.3.3 Size of the peer group................................................................ 724.3.4 Criteria for the identification of comparable firms.................... 734.4 Estimation of synthetic peer group multiples......................................... 74
Page 1 and 2: Equity Valuation Using Multiples:An
Page 4 and 5: IVForewordframework. Schreiner demo
Page 6 and 7: VIPrefacement from my friends, whic
Page 8 and 9: Brief contents1 Introduction ......
Page 12 and 13: XIIContents4.5 Actual valuation....
Page 14 and 15: List of figures 1Figure 1.1: Valuat
Page 16 and 17: Notations and abbreviationsPrice an
Page 18 and 19: XVIIINotations and abbreviationsM&A
Page 20 and 21: 2 Introductiongroup multiples must
Page 22 and 23: 4 Introductionexpenditures, amortiz
Page 24 and 25: 6 Introductiontion, therefore, aims
Page 26 and 27: 8 Introduction• Research question
Page 28 and 29: 10 Introductionscope of the solutio
Page 30 and 31: 12 IntroductionFigure 1.2: Outline
Page 32 and 33: 14 Literature reviewto earnings gro
Page 34 and 35: 16 Literature reviewserved market v
Page 36 and 37: 18 Literature reviewmultiple for ea
Page 38 and 39: 20 Literature reviewthe other. Chen
Page 40 and 41: 3 Theoretical foundationsShareholde
Page 42 and 43: 24 Theoretical foundationsferred to
Page 44 and 45: 26 Theoretical foundationswherev is
Page 46 and 47: 28 Theoretical foundationsholders a
Page 48 and 49: 30 Theoretical foundationsOhlson (2
Page 50 and 51: 32 Theoretical foundationsget firm'
Page 52 and 53: 34 Theoretical foundationsIn order
Page 54 and 55: 36 Theoretical foundationsRI D Bequ
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Page 58 and 59: 40 Theoretical foundationsThe loose
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42 Theoretical foundationscomings,
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44 Theoretical foundationsability c
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46 Theoretical foundationsposure to
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4 Comprehensive multiples valuation
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50 Comprehensive multiples valuatio
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5 Design of the empirical studyThe
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86 Design of the empirical studytio
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88 Design of the empirical studypir
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90 Design of the empirical study5.3
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92 Design of the empirical studyCha
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94 Design of the empirical studyand
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96 Design of the empirical studyass
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6 Empirical resultsThe following ch
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100 Empirical resultsous multiples
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102 Empirical resultsvalue multiple
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104 Empirical results6.1.3 Knowledg
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106 Empirical resultsknowledge-rela
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108 Empirical resultsTable 6.4: Per
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110 Empirical results6.1.5 The effe
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112 Empirical resultsThe second tes
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114 Empirical results6.2.1 Industry
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116 Empirical resultsExamination of
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118 Empirical resultscoefficients a
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120 Empirical results• The simple
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122 Empirical resultsTable 6.11: Co
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124 Empirical resultshowever, lapse
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126 Empirical resultsoped equity ma
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128 Conclusionmultiples, in particu
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130 Conclusion7.3 Research outlookE
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132 Appendix A: ICB industry classi
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134 Appendix A: ICB industry classi
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136 Appendix B: U.S. evidenceEquity
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138 Appendix B: U.S. evidencePerfor
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146 Appendix B: U.S. evidenceIndust
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148 Appendix B: U.S. evidenceFactor
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150 Appendix B: U.S. evidenceTime s
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152 Appendix C: Definition of varia
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ReferencesAboody, D., 2006. Financi
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156 ReferencesBernard, V.L., Thomas
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158 ReferencesDamodaran, A., 2001.
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160 ReferencesFama, E.F., 1976. Fou
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162 ReferencesGuo, R.-J., Lev, B.,
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164 ReferencesLev, B., Nissim, D.,
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166 ReferencesO’Hanlon, J., Peasn
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168 ReferencesRoss, S.A., Westerfie
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Curriculum VitaeName:Born:Andreas S
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Equity Valuation Using Multiples: An Empirical Investigation

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