5
Ratio-based valuation 51
The criticism against multiples, on the other hand, is that they are:
Too simplistic. A valuation multiple has to focus on only one variable
and it may not accurately reflect other value-driving variables at play.
For example, when doing a relative valuation of company B, if an EBIT
multiple from comparable company A is used, a faster growth in the
revenues of company B might be neglected. In other words, multiple
valuations can miss company-specific value drivers (or value destroy-
ers) and may not properly consider the operating or strategic dynamics
in the underlying business.
Propensity for inaccuracy. When conducting a relative multiple
valuation, you are in fact letting other investors do the ...