Pick all statements below which are generally true regarding the Multiples method of valuing a company....
Pick all statements below which are generally true regarding the Multiples method of valuing a company.
a) Comps should have names similar to the company of interest.
b) EV/Sales is an appropriate multiple.
c) Comps should have similar CAPM betas.
d) Comps should have similar stock prices.
Options:
a only
b only
a and b
b and c
c and d
a, b, c
b, c, d
all are generally true
Homework Answers
Multiples method/relative valuation method of valuing a company is an approach based on valuing a company on the basis of how similar companies are valued.
It requires the use of price multiples.
Such as:
1. Market capitalisation.
2. Enterprise value.
3. Earnings
4. Sales
5. Cash flow
6. Book value
7. Earnings before depreciation interest and tax.
8. Earnings before interest and tax etc.
EV/Sales is an appropriate multiple.
Answer: b only.
Incorrect: remaining all options because it does not fit into explanation given above about the use of price multiples.
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