an awareness of howmultiplesvary across sectors canbe
veryusefulindetectingwhenthesectoryouareanalyzingis
over- or undervalued.
What arethedistributional characteristicsthatmatter? The
standardstatistics—theaverage andstandarddeviation—are
whereweshouldstart,buttheyrepresentthebeginningofthe
exploration.InmarketsliketheUnitedStates,characterized
bydiversecompaniesinverydifferentbusinesses,therewill
besignificantvariationacrosscompaniesonanymultipleat
any point in time. Table 7.1 summarizes the average and
standard deviation for three widely used
multiples—price-earningsratio,price-to-bookvalueratio,and
enterprisevalue-to-EBITDAmultiple—inJanuary 2005 inthe
UnitedStates.Inaddition,themaximumandminimumvalues
for each multiple are reported.
TABLE 7.1Summary Statistics on Multiples—January 2005
Notethatthelowestvaluethatanycompanycanregisteron
anyofthesemultiplesiszero,whereasthehighestvaluesare
unbounded.Asaresult,thedistributionsforthesemultiples
areskewedtowardthepositivevalues.Figure7.2compares
thedistribution ofvaluesforatypicalmultipletoa normal
distribution.