Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

reports in early 2001, relative valuations outnumbered discounted valuations almost 10 to 1. 1 While manyequity researchreports ...

Whyistheuseofrelativevaluationsowidespread?Whydo managersandanalystsrelatesomuchbettertoavaluebased onamultipleandcomparablestha ...

multipleoftencomesfromwhatthemarketispaying forsimilarfirms.Itcanbearguedthatthebruntofthe responsibility in a relative valuatio ...

themarketmoodalsoimpliesthatusingrelativevaluationto estimatethevalueofanassetcanresultinvaluesthataretoo highwhenthemarketisove ...

firmsgenerate,ortomeasuresthatarespecifictofirmsina sector. Earnings Multiples Oneofthemoreintuitivewaystothinkofthevalueofany a ...

payforastockandthebookvalueofequity(ornetworth)as a measure of how over- or undervalued a stock is; the price-to-bookvalueratiot ...

Whereasearnings,bookvalue,andrevenuemultiplescanbe computedforfirmsinanysectorandacrosstheentiremarket, there aresome multiples ...

Multiplesareeasytouseandeasytomisuse.Therearefour basicstepstousingmultipleswiselyandfordetectingmisuse in thehands ofothers. Th ...

someoftheP/EratiosforGoogleinNovember 2005 using different estimates of earnings per share. FIGURE 7.1Google—P/E Ratios in Novem ...

Consistency Every multiple has a numerator and a denominator. The numeratorcanbeeitheranequityvalue(suchasmarketprice orvalueofe ...

inconsistencydoesnotmattersincethemultipleiscomputed thesamewayforallofthecomparablefirms;buttheywould bewrong.Ifsomefirmsonthel ...

Even with the same accounting standards governing companies, there can be differences in firms that arise becauseofdiscretionary ...

an awareness of howmultiplesvary across sectors canbe veryusefulindetectingwhenthesectoryouareanalyzingis over- or undervalued. ...

FIGURE 7.2 Distribution of a Multiple versus Normal Distribution Theconsequencesofasymmetric distributionsforinvestors and analy ...

infavorofonethatcomparesthestock’spricingto the median for the sector. Probabilisticstatements.Asaresultofthefocuson normal dis ...

price-earningsratiogreaterthan 500 willbeassumedtohave a price-earnings ratioof 500. Theconsequence is that the averages reporte ...

using the aggregated values. Figure 7.3 summarizes the average P/E ratio, themedian P/E ratio,and the P/E ratio based on aggrega ...

Thethirdchoiceistouseamultiplethatcanbecomputedfor allofthefirmsinthegroup.Theinverseoftheprice-earnings ratio,whichiscalledthee ...

keyroleintheriseofearningsmultiplesthroughthe1990s. Someofthechange,though,comesfromchangesinmarket perception of risk.As invest ...

Determinants In the introduction to discounted cash flow valuation, we observed that the value of a firm is a function of three ...