Valuation Multiples (Relative Valuation)

Topic outline

• Select topic Module Homepage

  Module Homepage
• Select topic 1. Introduction

  1. Introduction

  Welcome to "Valuation Multiples!" The module introduces you to the most popular valuation approach among practitioners: Relative Valuation. This introductory section motivates the topic and explains the logic of the module.

    

   

   

  The main learning goals of this module are:

  • Get to know valuation multiples, the practically most relevant valuation method.
  • Understand the key success factors of using relative valuation.
  • Use multiples for enterprise valuation and equity valuation.
  • Know key implementation challenges and their solutions.
  • Get to know the Price-Earnings (PE)-Ratio and the implicit assumptions we make when using it.

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• Select topic 2. General Considerations

  2. General Considerations

  This section gives a brief introduction to relative valuation and presents the basic idea behind this simple yet powerful valuation method.

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• Select topic 3. Enterprise Value, Equity Value, and Multiples

  3. Enterprise Value, Equity Value, and Multiples

  This section briefly shows the relation between enterprise value and equity value and shows how we can use relative valuation to derive these values. It also takes a closer look at what "enterprise value" actually is.

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• Select topic 4. Implementation Challenges and Solutions

  4. Implementation Challenges and Solutions
  In this section, we address the three key challenges we face when conducting relative valuation: How to pick multiples? Which ones are the "right" comparables? And what are comparable valuation situations? 

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• Select topic 5. The Price-Earnings Ratio

  5. The Price-Earnings Ratio

  This section takes a closer look at the P/E ratio, the most popular valuation multiple among financial analysts. We show how to derive the P/E ratio from a simple valuation model. This allows us to better understand the (implicit) assumptions we make when working with the P/E ratio. We also see that many other multiples are a function of the P/E ratio.

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