Youshouldplayan activeroleindeciding which multiple
shouldbeusedtovalueacompanyandwhatfirms willbe
viewedascomparablefirms.Second,whenpresentedwitha
valuebasedononemultipleandasetofcomparablefirms,
youshouldalwaysaskwhatthevaluewouldhavebeenifan
alternative multiple and different comparables had been used.
The Bludgeon View
You canalways value a company using a dozen or more
multiplesandthenuseallofthevalues,differentthoughthey
mightbe,inyourfinalrecommendation.Therearethreeways
inwhichwecanpresentthefinalestimateofvalue.Thefirst
isintermsofarangeofvalues,withthelowestvaluethatyou
obtainedfromamultiplebeingthelowerendoftherangeand
thehighestvaluebeingtheupperlimit.Theproblemwiththis
approachisthattherangeisusuallysolargethatitbecomes
uselessforanykindofdecisionmaking.Thesecondapproach
isasimpleaverageofthevaluesobtainedfromthedifferent
multiples.Whilethisapproachhasthevirtueofsimplicity,it
gives equalweight to thevaluesfrom eachmultiple, even
thoughsomemultiplesmayyieldmorepreciseanswersthan
others. Thethirdapproachisa weighted average,with the
weightoneachvaluereflectingtheprecisionoftheestimate.
This weight canbe either a subjectiveone or a statistical
measure—youcan,forinstance,usethestandarderrorona
prediction from a regression as a measure of precision.
The Best Multiple
Whilewerealizethatyoumaybereluctanttothrowawayany
information,thebestestimatesofvalueareusuallyobtained