MarketBased Valuation: Price and Enterprise Value Multiples

 Price multiples (such as PE, PB, PEG, PS, PCF ratios) are among the most widely used tools for valuation of equities. Comparing stocks price multiples can help an investor judge whether a particular stock is overvalued, undervalued, or properly valued in terms of measures such as earnings, book value, sales, or cash flow per share.  Enterprise value multiples (such as EVEBIDTA ratio) relate the total value of a company, as reflected in the market value of its capital from all sources, to a measure of operating earnings generated, such as earnings before interest, taxes, depreciation, and amortizaton.  Momentum indicators compare a stocks price or a companys earnings to their values in earlier periods.

Market-Based Valuation:

Price and Enterprise Value Multiples

기업가치분석: 중앙대학교 경영학부 박창헌 교수

Warm-Up: MULTIPLES

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 Price multiples (such as P/E, P/B, PEG, P/S, P/CF ratios) are among

the most widely used tools for valuation of equities Comparing stocks'

price multiples can help an investor judge whether a particular stock is

overvalued, undervalued, or properly valued in terms of measures such

as earnings, book value, sales, or cash flow per share

 Enterprise value multiples (such as EV/EBIDTA ratio) relate the

total value of a company, as reflected in the market value of its capital

from all sources, to a measure of operating earnings generated, such as

earnings before interest, taxes, depreciation, and amortizaton

 Momentum indicators compare a stock's price or a company's

earnings to their values in earlier periods

Approaches to Using Multiples in Valuation

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You should distinguish between the method of comparables and

the method of forecasted fundamentals as approaches to using

multiples in valuation

Example: Method of Comparables

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Example: Method of Forecasted Fundamentals

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Example: Method of Forecasted Fundamentals

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PRICE MULTIPLES

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 Price multiples are ratios of a common stock's market price to

some fundamental variable The most common example is the

price-to-earnings (P/E) ratio

A justified price multiple is what the multiple should be if the

stock is fairly valued

If the actual multiple is greater than the justified price

multiple, the stock is overvalued; if the actual multiple is less than

the justified multiple, the stock is undervalued (all else equal)

P/E (Price-to-Earnings) Ratio

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P/E Ratio

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P/E Ratio

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P/B (Price-to-Book) Ratio

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P/B Ratio

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P/B Ratio

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P/B Ratio

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P/B Ratio

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P/B Ratio

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P/S (Price-to-Sales) Ratio

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P/S Ratio

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P/S Ratio

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P/S Ratio

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P/S Ratio

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P/CF (Price-to-Cash Flow) Ratio

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Dividend Yield (D/P)

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Dividend Yield

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Dividend Yield

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Underlying Earnings

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Underlying Earnings

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Underlying Earnings

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Normalized Earnings

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Normalized Earnings

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Normalized Earnings

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The Use of Earnings Yield (E/P)

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Justified P/E Multiple

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Justified P/E Multiple

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Justified P/E Multiple

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Justified P/E Multiple

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Justified P/E Multiple

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Justified P/B Multiple

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Source: RI Valuation Models – PPT (p 19)

Justified P/B Multiple

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Justified P/B Multiple

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Justified P/S Multiple

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Justified P/S Multiple

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Justified P/S Multiple

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Justified P/CF Multiple

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Justified EV/EBITDA Multiple

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Justified Dividend Yield

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Estimating Predicted P/E

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Estimating Predicted P/E

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Benchmark Value of a Multiple

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Examples of P/E Benchmarks

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The Method of Comparables

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The Importance of Fundamentals

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Evaluating P/E with the Method of Comparables

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Evaluating P/B and P/S Ratios

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Evaluating P/B and P/S Ratios

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Evaluating P/B and P/S Ratios

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Evaluating EV/EBITDA and Dividend Yield

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Evaluating PEG Ratio

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Evaluating PEG Ratio

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Evaluating PEG Ratio

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Getting Terminal Value Using Price Multiples

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Getting Terminal Value Using Price Multiples

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Getting Terminal Value Using Price Multiples

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Definitions of Cash Flow Used in Multiples

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(1) CF (earnings-plus-noncash-charges)

Definitions of Cash Flow Used in Multiples

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(2) Adjusted CFO (adjusted cash flow)

Definitions of Cash Flow Used in Multiples

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(3) FCFE (free cash flow to equity)

Definitions of Cash Flow Used in Multiples

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(4) EBITDA

Example: Calculating P/CF

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Enterprise Value and EV/EBITDA

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EV/EBITDA Ratio

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EV/EBITDA: Advantages and Drawbacks

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Example: Calculating EV/EBITDA

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Example: Calculating EV/EBITDA

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Alternative Measures

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Cross-Border Valuation Comparisons

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Momentum Indicators

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Momentum Indicators

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Central Tendency of a Group of Multiples

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Central Tendency of a Group of Multiples

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Central Tendency of a Group of Multiples

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