American Journal of Applied Sciences

Equity Valuation with the Use of Multiples

Stauropoulos Antonios, Samaras Ioannis and Arsenos Panagiotis

DOI : 10.3844/ajassp.2012.60.65

American Journal of Applied Sciences

Volume 9, Issue 1

Pages 60-65

Abstract

Problem statement: Equity valuation with the use of multiples is widely used by academics and practitioners concerning its functionality. This study aims to explore the sensitivity of three multiples in terms of bias. Approach: The three multiples under consideration are the Price-To-Sales (P/S) multiple, the Price-To-Book value of equity (P/B) multiple and the Price-To-Earnings (P/E) multiple using both current and one-year-ahead earnings forecasts. Results: According to the empirical results, the multiples P/mdfy1 and P/mnfy1 are considered to be biased, with their means being negatively biased and their medians being positively biased. The results can be considered as reliable owing to the large sample and the procedure followed for its selection. Conclusion: This study offers a better understanding of the valuation approach through the use of multiples, in order analysts assumption to be more carefully and properly chosen and their results to be more accurately produced.

Copyright

© 2012 Stauropoulos Antonios, Samaras Ioannis and Arsenos Panagiotis. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.