Principles of Private Firm Valuation

TABLE 4.7

Comparison of Free Cash Flow Valuation to the Method of Multiples

Comparable Valuation Methods

(F)

Comparable

(D)

(E)

Industry

(A)

(B)

(C)

Comparable

Comparable

Transaction

Firm Beta

Industry Beta

Market Beta

Company

Transaction

(N

=

38)

Panel A: Summary statistics for valuation errors1. Median

6.00%

6.20%

2.50%

−18.10%

5.90%

−0.10%

2. Mean

8.00%

7.10%

3.10%

−16.60%

0.30%

−0.70%

3. Standard deviation

28.10%

22.60%

22.60%

25.40%

22.30%

28.70%

4. Interquartile range

31.30%

23.00%

27.30%

41.90%

32.30%

23.70%

5. Asset beta (median)

0.81

0.84

0.91

Panel B: Performance measures for valuation errors1. Pct. within 15%

47.10%

62.70%

58.80%

37.30%

47.10%

57.90%

2. Mean absolute error

21.10%

18.10%

16.70%

24.70%

18.10%

20.50%

Mean squarred error

8.40%

6.70%

5.10%

9.10%

4.90%

8.00%

67

CAPM-Based Valuation Methods