The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition
by Aswath Damodaran
The Four Basic Steps of Using Multiples
Multiples are easy to use and easy to misuse. There are four basic steps to using multiples wisely and for detecting misuse in the hands of others. The first step is to ensure that the multiple is defined consistently and that it is measured uniformly across the firms being compared. The second step is to be aware of the multiple’s cross-sectional distribution, not only across firms in the sector being analyzed, but also across the entire market. The third step is to analyze the multiple and understand not only what fundamentals determine the multiple but also how changes in these fundamentals translate into changes in the multiple. The final step is finding the right firms to use for comparison and controlling ...
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