Equity Valuation Using Multiples An Empirical Investigation

Accounting-based market multiples are the most common technique in equity valuation. The literature on corporate valuation gives only sparse evidence on how to apply multiples or on why individual multiples or comparable firms should be selected in a particular context.

In spite of the widespread usage of multiples in practice, relevant research related to the multiples valuation method is lacking. While valuing firms using multiples seems straightforward at first glance, it actually implies several complications and open issues.

To close this gap, Andreas Schreiner examines the role of multiples in equity valuation. He transforms the standard multiples valuation method into a comprehensive framework for using multiples in valuation practice, which corresponds to economic theory and is consistent with the results of a broad empirical study of European and U.S. equity markets.


Accounting-based market multiples are the most common technique in equity valuation. Multiples are used in research reports and stock recommendations ofboth buy-side and sell-side analysts, in fairness opinions and pitch books of investment bankers, or at road shows offirms seeking an IPO. Even in cases where the value of a corporation is primarily determined with discounted cash flow, multiples such as PIE or market-to-book play the important role of providing a second opinion. Mul­ tiples thus form an important basis of investment and transaction decisions of vari­ ous types of investors including corporate executives, hedge funds, institutional in­ vestors, private equity firms, and also private investors. In spite of their prevalent usage in practice, not so much theoretical back­ ground is provided to guide the practical application of multiples. The literature on corporate valuation gives only sparse evidence on how to apply multiples or on why individual multiples or comparable firms should be selected in a particular context.