Therewere 886.47millionsharesoutstandinginDecember
2001.
RELATIVE VALUATION
Most valuations in practice, including those of distressed
firms,arerelativevaluations.Inparticular,firmsarevalued
using multiplesand groups of comparable firms. Anopen
question then becomes whether the effects of distress are
reflected in relative valuations and, if not, how best to do so.
Distress in Relative Valuation
Itisnotclearhowdistressisincorporatedintoanestimateof
relativevalue.Considerhowrelativevaluationismostoften
done. We choose a group of firms that we believe are
comparabletothefirmthatwearevaluing.Usually,wepick
firms in the same business that our firm is in. We then
standardize prices by computing a multiple—price to
earnings,pricetobook,enterprisevaluetosales,orenterprise
value to EBITDA. Finally, we examine how our firm
measuresuponthismultiplerelativetothecomparablefirms.
Although thistime-honoredapproachis usedfordistressed
firmsaswell,twoissuesgenerallyareuniquetodistressed
firms:
1.Revenueand EBITDAmultiplesareusedmoreoftento
value distressed firms than healthy firms. The reasons are