Equity Valuation Using Multiples: An Empirical Investigation

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102 Empirical resultsvalue multiples still explain market values better than the corresponding entityvalue multiples. To make an overall comparison, the average aggregates the numbersof the individual multiples. This comparison shows that equity value multiplesperform 22.51 percent better than the equivalent entity value multiples using themedian error as performance measure. The relative difference shrinks to 1.22 percentwhen looking at the fraction of errors below 15 percent.Table 6.2: Performance of equity value versus entity value multiplesMedian valuation errorsAbsolutedifferenceRelativedifference (%)Fraction < 0.15AbsolutedifferenceRelativedifference (%)Overall comparisonEquity value MP vs. Entity value MP -0.0694 -22.51% 0.0126 1.22%Accrual flow multiplesP / SA vs. EV / SA -0.0621 -14.20% -0.0096 -4.17%P / GI vs. EV / GI -0.0565 -14.12% 0.0105 4.27%P / EBITDA vs. EV / EBITDA -0.0568 -19.22% -0.0033 -1.05%P / EBIT vs. EV / EBIT -0.0705 -24.54% 0.0289 9.00%Book value multiplesP / TA vs. EV / TA -0.0103 -2.74% 0.0018 0.71%P / IC vs. EV / IC 0.0149 4.28% -0.0166 -5.94%Cash flow multiplesP / CFO vs. EV / CFO -0.1076 -31.99% 0.0273 -30.28%Knowledge-related multiplesP / (EBIT+R&D) vs. EV / (EBIT+R&D) -0.0738 -26.98% 0.0414 12.30%P / (EBIT+AIA) vs. EV / (EBIT+AIA) -0.0351 -12.95% 0.0095 2.86%P / (EBIT+KC) vs. EV / (EBIT+KC) -0.0325 -11.40% 0.0266 7.84%Forward-looking multiplesP / SA 1 vs. EV / SA 1 -0.0916 -20.92% -0.0006 -0.29%P / SA 2 vs. EV / SA 2 -0.1032 -24.03% -0.0070 -3.09%P / EBITDA 1 vs. EV / EBITDA 1 -0.1001 -35.59% 0.0162 5.07%P / EBITDA 2 vs. EV / EBITDA 2 -0.0899 -33.84% 0.0104 3.17%P / EBIT 1 vs. EV / EBIT 1 -0.1334 -50.76% 0.0323 9.65%P / EBIT 2 vs. EV / EBIT 2 -0.1023 -41.18% 0.0345 9.41%Note: negative numbers for the absolute (relative) difference of median valuation errors indicatethat equity value multiples outperform entity value multiples. For instance, using the P/GI multipleinstead of the EV/GI multiple reduces the absolute (relative) median valuation error on average by5.65 percentage points (14.12 percent). Positive numbers for the absolute (relative) difference ofthe fraction
Empirical results 103Figure 6.1 summarizes the results for the individual multiples of table 6.2. Theexplanatory power of equity value multiples compared to that of entity value multiplesis higher in 15 out of 16 observations (i.e., 93.75 percent) when looking at medianabsolute valuation errors and in ten out of 16 observations (i.e., 62.5 percent)when looking at fractions of valuation errors smaller than 15 percent. Taken together,the results substantiate the hypothesis to research question 5 and allow toconclude that equity value multiples outperform entity value multiples in terms ofvaluation accuracy. The underlying reason for this conclusion is that noise in theestimation procedure of the enterprise value distorts the reliability of entity valuemultiples. Because of this distortion-effect I restrict the investigation of the remainingresearch questions to equity value multiples.Figure 6.1: Performance of equity value versus entity value multiples6.25% 37.50%93.75%62.50%Median valuation error Fraction
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Equity Valuation Using Multiples:An
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IVForewordframework. Schreiner demo
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VIPrefacement from my friends, whic
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Brief contents1 Introduction ......
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ContentsForeword...................
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XIIContents4.5 Actual valuation....
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List of figures 1Figure 1.1: Valuat
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Notations and abbreviationsPrice an
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XVIIINotations and abbreviationsM&A
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2 Introductiongroup multiples must
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4 Introductionexpenditures, amortiz
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6 Introductiontion, therefore, aims
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8 Introduction• Research question
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10 Introductionscope of the solutio
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12 IntroductionFigure 1.2: Outline
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14 Literature reviewto earnings gro
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16 Literature reviewserved market v
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18 Literature reviewmultiple for ea
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20 Literature reviewthe other. Chen
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3 Theoretical foundationsShareholde
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24 Theoretical foundationsferred to
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26 Theoretical foundationswherev is
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28 Theoretical foundationsholders a
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30 Theoretical foundationsOhlson (2
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32 Theoretical foundationsget firm'
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34 Theoretical foundationsIn order
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36 Theoretical foundationsRI D Bequ
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38 Theoretical foundationsFigure 3.
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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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Page 102 and 103: 5 Design of the empirical studyThe
Page 104 and 105: 86 Design of the empirical studytio
Page 106 and 107: 88 Design of the empirical studypir
Page 108 and 109: 90 Design of the empirical study5.3
Page 110 and 111: 92 Design of the empirical studyCha
Page 112 and 113: 94 Design of the empirical studyand
Page 114 and 115: 96 Design of the empirical studyass
Page 116 and 117: 6 Empirical resultsThe following ch
Page 118 and 119: 100 Empirical resultsous multiples
Page 122 and 123: 104 Empirical results6.1.3 Knowledg
Page 124 and 125: 106 Empirical resultsknowledge-rela
Page 126 and 127: 108 Empirical resultsTable 6.4: Per
Page 128 and 129: 110 Empirical results6.1.5 The effe
Page 130 and 131: 112 Empirical resultsThe second tes
Page 132 and 133: 114 Empirical results6.2.1 Industry
Page 134 and 135: 116 Empirical resultsExamination of
Page 136 and 137: 118 Empirical resultscoefficients a
Page 138 and 139: 120 Empirical results• The simple
Page 140 and 141: 122 Empirical resultsTable 6.11: Co
Page 142 and 143: 124 Empirical resultshowever, lapse
Page 144 and 145: 126 Empirical resultsoped equity ma
Page 146 and 147: 128 Conclusionmultiples, in particu
Page 148 and 149: 130 Conclusion7.3 Research outlookE
Page 150 and 151: 132 Appendix A: ICB industry classi
Page 152 and 153: 134 Appendix A: ICB industry classi
Page 154 and 155: 136 Appendix B: U.S. evidenceEquity
Page 156 and 157: 138 Appendix B: U.S. evidencePerfor
Page 164 and 165: 146 Appendix B: U.S. evidenceIndust
Page 166 and 167: 148 Appendix B: U.S. evidenceFactor
Page 168 and 169: 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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