Multiples COPY Flashcards

1
Q

Which are the types of multiples?

A

1)

  • Stock market: comparable companies
  • Transaction: comparable transactions (include control premium)

2) current, trailing, forward

From both you get a price and not the value of equity

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2
Q

Methods to define comparable companies?

A

direct comparison
storytelling
modified multiples
statistical techniques (regression problems are not always linear relationship, relationship change, multicollinearity)

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3
Q

Which multiple to choose?

A

only one multiple and not average, the one that most meet valuation needs, highest R2, the one that seems to have more “sense” for the sector.

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4
Q

Which are the right multiples for each sector?

A

manufacturing (P/E),
companies with high growth potential (PEG ratio),
start-ups (multiples of turnover),
infrastructure (EV/EBITDA),
REIT (P/CFE)(Net earnings+Depreciation)(g, PEG ratio), financial (P/BV (emphasis on ROE)),
retail (revenue multiples (multiple turnover))

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5
Q

Asset side multiples

A
  • EV/Sales
  • EV/EBIT
  • EV/EBITDA: preferred because linked to a potential cash flow, less easily manipulated, avoid depreciation that is country specific.
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6
Q

FORMULA: EV/EBITDA

A

EV/EBITDA=((1-t))/(WACC-g)+(D&Amm(t)/EBITDA)/(WACC-g)-(CAPEX/EBITDA)/(WACC-g)- (∆WC/EBITDA)/(WACC-g)

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7
Q

Equity side multiples

A
  • P/E: (Payout*(1+g))/(k_e-g)
  • P/BV: (ROE*Payout ratio)/(k_e-g)
  • PEG: PE/(Growth rate in earnings)

Lower the PEG, the more the company may be undervalued

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