The Market Approach to Comparable Company Valuation (ZEW by Matthias Meitner

By Matthias Meitner

Corporate valuation utilizing multiples is among the most well-liked company valuation ways. during this ebook, the various steps of this valuation method equivalent to the choice of similar businesses or the alternative of the reference variables are mentioned. Then, the situations required for a legitimate valuation (e.g., the measure of potency of the fairness industry) are defined. also, the publication provides perception on how the nation of the and/or the corporate has an influence at the right collection of the reference variables. ultimately, it really is proven how multi-factor types can improve the universe of valuation versions. whereas continually retaining the educational rigor, the writer addresses practice-relevant issues and can provide hands-on ideas for average valuation problems.

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7) if FBiτ = FB jτ and ci = c j and gi = g j subscript i indicating the “target company” subscript j indicating the “comparable company/companies” Since the requirements to the comparability of companies are very high under this approach, it becomes obvious that its application typically fails because of the lack of equal companies in real settings. Thus, the aim of this section is not to provide a model for practical use but rather to highlight the importance of the principle of arbitrage. While this principle is strongly emphasized in the immediate valuation approach, it is not restricted to this model; rather it is the central element of every variant of CCV.

31 While the first variant is a very subjective and simplified approach and without any deeper theoretical foundation, the latter plays a major role in modern valuation settings. The idea of CCV arises from the basic principle of arbitrage, which states that all substitutes should sell for the same price (see Gerke and Bank, 1998: 231-232). In the context of business valuation this means that – given uniform investors’ expectations and valuation circumstances – equal companies should have the same value.

Since German GAAP is a rather creditor-oriented system and therefore many adjustments are necessary to create (equity-) investor-oriented figures, the German Society of Investment Appraisers and Asset Managers (DVFA) established a system on how to adjust earnings (see Busse von Colbe, 2000). This scheme is often used in CCVs (see Löhnert and Böckmann, 2005: 411). (2) The second problem is that a lack of data complicates the adjustment process. This is a general problem in financial statement analysis.

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