Equity Valuation Using Multiples: An Empirical Investigation

Appendix B: U.S. evidence 141Performance of forward-looking versus trailing multiples (table)Median valuation error Fraction < 0.15AbsolutedifferenceRelativedifference (%)AbsolutedifferenceRelativedifference (%)Overall comparison1-year forecasts vs. Trailing numbers -0.0440 -15.70% 0.0579 17.16%2-year forecasts vs. Trailing numbers -0.0657 -23.89% 0.0934 27.26%2-year forecasts vs. 1-year forecasts -0.0217 -10.13% 0.0354 8.42%SalesP / SA 1 vs. P / SA -0.0376 -9.44% 0.0187 7.30%P / SA 2 vs. P / SA -0.0366 -9.18% 0.0093 3.63%P / SA 2 vs. P / SA 1 0.0010 0.29% -0.0094 -3.42%EBITDAP / EBITDA 1 vs. P / EBITDA -0.0393 -13.39% 0.0480 15.11%P / EBITDA 2 vs. P / EBITDA -0.0539 -18.40% 0.0833 26.20%P / EBITDA 2 vs. P / EBITDA 1 -0.0147 -5.78% 0.0352 9.63%EBITP / EBIT 1 vs. P / EBIT -0.0291 -10.54% 0.0528 15.74%P / EBIT 2 vs. P / EBIT -0.0553 -20.06% 0.0826 24.62%P / EBIT 2 vs. P / EBIT 1 -0.0263 -10.64% 0.0298 7.67%EBTP / EBT 1 vs. P / EBT -0.0368 -13.96% 0.0269 7.66%P / EBT 2 vs. P / EBT -0.0756 -28.67% 0.0881 25.07%P / EBT 2 vs. P / EBT 1 -0.0388 -17.09% 0.0612 16.17%EarningsP / E 1 vs. P / E -0.0774 -31.15% 0.1432 39.97%P / E 2 vs. P / E -0.1072 -43.15% 0.2035 56.79%P / E 2 vs. P / E 1 -0.0298 -17.42% 0.0603 12.02%Note: negative numbers for the absolute (relative) difference of median valuation errors indicatethat forward-looking multiples outperform trailing multiples. For instance, using the P/E1 multipleinstead of the P/E multiple reduces the absolute (relative) median valuation error on average by7.74 percentage points (31.15 percent). Positive numbers for the absolute (relative) difference ofthe fraction