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Valuation Using Multiples. How Do Analysts Reach their Conclusions?-Chapter 8

DOI: 10.1016/b978-012253841-4.50021-4


Publisher Summary This chapter discusses the equity valuation using multiples. The chapter presents valuation methods that are most widely used by the Morgan Stanley Dean Witter analysts for valuing European companies. Although the price–earnings ratio (PER) and the enterprise value of EBITDA (EV/EBITDA) seem to be the most popular multiples for valuing firms, certain multiples are more appropriate than others depending on the industry being analyzed. The price- or capitalization-based multiples are very easy to understand and calculate. There are some relative valuations with respect to the firm's own history, market, and industry. In the case of North America, Europe, and Latin America, the PER is the multiple with the most dispersion. The chapter presents several recommendations that are made by 226 brokers during the period of 1989–1994. These recommendations range mostly between hold and buy, and less than 10% of the recommendations are to sell. The analysts' recommendations for Spanish companies in the IBEX 35 index are also presented in the chapter.

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