Using industry average multiples for valuation

Bhargav Maniar

Abstract


Valuation of equity shares of a company is an important exercise and is performed on multiple occasions, be it investment decision in a particular company, merger, acquisition, restructuring, public issue, etc. Using industry average multiple is a common practice, especially when an unlisted security is to be valued.

 

The study looks at eight industries and attempts to derive (a) which is the most stable industry average multiple by using the statistical tool coefficient of variation and (b) which would be the most important financial performance parameter, which could be driving multiple of a particular security within the industry by using statistical tool of coefficient of correlation.

Keywords


Industry average multiple, valuation, market capitalization, book value, coefficient of variation/correlation

References


o Damodaran on Valuation: Security Analysis for Investment and Corporate Finance, by Ashwath Damodaran, Wiley Finance

o Bloomberg terminal

o Moneycontrol.com

o Google finance

o Auto Components Manufacturers Association of India

o Reuters finance

o Website of the Securities and Exchange Board of India


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