Valuation Multiples (Relative Valuation)

Section outline

• Select section Module Homepage

  Module Homepage

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• Select section 1. Introduction

  1. Introduction

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  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.

  Activities: 2
• Select section 2. General Considerations

  2. General Considerations

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

  Activities: 3
• Select section 3. Enterprise Value, Equity Value, and Multiples

  3. Enterprise Value, Equity Value, and Multiples

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  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.

  Activities: 3
• Select section 4. Implementation Challenges and Solutions

  4. Implementation Challenges and Solutions

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  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? 

  Activities: 3
• Select section 5. The Price-Earnings Ratio

  5. The Price-Earnings Ratio

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  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.

  Activities: 3