company. The brand name value can be backed out as
follows:
Thus, if weare usingEV/sales ratiosas ourmultiples for
comparison, this would be modified as follows:
This approachrequires lessworkthanthe discountedcash
flowapproach,sincewearetakingthemarketvaluationas
givenandnot tryingto estimatevalueourselves. However,
marketmistakeswillfindtheirwayintoourvaluations,and
wearestillassumingthattheonlyreasonforthedifferences
acrossfirmsisthatonehasabrandnameandtheotherdoes
not.
Comparing Market Valuations of Different Firms
Whatif wecannotfinda genericcompanythatispublicly
traded? In Chapter 9, we introduced multiple regressions,
whereweregressedthemultiplesthatfirmstradeatagainst
thefundamentalsthatdeterminevalue.Theresultingoutput
allowedustoisolatetheeffectofeachofthefundamentals;
forinstance,wecouldestimatetheeffectofhighergrowthon
EV/salesratiosofretailfirms.Byintroducingadirectoran
indirectmeasureofbrandnameintotheregression,wecan
estimate its effect on value.
- Directmeasureofbrandname.Assumethatweare
analyzing 30 consumerproductcompanies, 10 with
strongbrandnamesand 20 withweakerbrandnames.