We also consider forwardlooking measures derived from analysts forecasts of eps earnings per share and longterm growth in eps, such as 2year out consensus eps. The current company valuation of ubs group ag is therefore way below its valuation average over the last five years. The secret lies in identifying a similar peer group of companies relative and learn how much are they valued. The use of business valuation methods in africa, europe and australia. Questions on equity value, enterprise value, and valuation metrics and multiples are some of the most common ones in interviews. A primer november 2001 3 ubs g wr bu r a an introduction to multiples this document is intended to be a reference manual for the calculation of commonly used valuation multiples. Ubs valuation multiples primer by wallstreetprep on scribd. Based on the valuation of its peer group, we can arrive at the value of the company under consideration. Since enterprise value ev equals equity value plus net debt, ev multiples are calculated using denominators. Due to the fastpaced nature of this world, however, no one was able to take the time to properly codify its lifebloodnamely, valuation and dealmaking. Value focus fintech industry second half 2016 2016 can be characterized as a cool down period for fintech.
The market imperative relative valuation is much more likely to re. But you need to get your head around this to understand the valuation game with prospective investors. With accounting, other sources may not give much detail, but at least the information is correct. Ubs global research valuation series discounted cash flow analysis august 1997 4 overview used by bankers and accountants, but rarely by analysts discounted cash flow dcf valuations are numerically intensive and, therefore, their use only became commonplace when lowcost desktop computing was widely available in the 1980s. Valuation multiples are the quickest way to value a company, and are useful in comparing similar companies comparable company analysis. Multiples analysis compares the companys multiple with that of a peer company or are financial measurement tools that evaluate one financial metric as a ratio of another, in order to make different companies more comparable. They attempt to capture many of a firms operating and financial characteristics e.
Transaction multiples advantages, disadvantages and analysis. Relative valuation accuracy of corporate valuation using multiples. Ubs warburg, 1 finsbury avenue, london, ec2m 2pp, uk phone. Multiples is a term widely used in lots of valuation theories. Strategic advice on company sales, mergers and acquisitions. Measuring and managing the value of companies, 6th edition. In economics, valuation using multiples, or relative valuation, is a process that consists of. This distinction is a point of emphasis throughout this report. Value focus fintech industry business valuation and.
We explain how multiples are calculated and discuss the different variations that can be employed. This ubs report published over a decade ago breaks down the fundamentals underlying multiples. This document explains how to calculate and use multiples commonly used in equity analysis. The advantage of using revenue multiples, however, is that it becomes far easier to compare firms in different markets, with different accounting systems at work, than it is to compare earnings or book value multiples. Even if carried out in two different times, the two surveys show the same outcome. Valuation multiples approach is also known as relative valuations trading multiples. Almost 85% of equity research reports are based upon a multiple and. Among the different methods, transaction multiples play a very different role, as they make the buyer aware of the value of a particular. Valuation multiples of publicly traded fintech companies remain elevated relative to broader markets and financials. There are, to the best of the authors knowledge, four approaches to value banks. A primer 2001, ubs warburg, 2001 business valuation 101, theresa shonat. On the asset side you have financial assets earning some sort of interest. Therefore, similarity based on things that drive both risk weighted average cost of capital wacc and growth.
Wilson, cfa, cba february 19, 20 mercer capital depository. A recent survey found that the two most popular multiples are pricetoearnings pe and evebitda. In australia the dcf and the market approach using multiples are most used too. If you are looking for more information on valuation multiples, check out this pdf excellent primer published by ubs warburg. The multiple is a ratio, composed of two variables. Valuation using multiples often known as relative valuation is a technique that is used for making an estimate of the value of an asset and this is done by making a comparison of the assets value with the values of similar assets or comparables after analyzing the market process of valuation using multiples. The only primer youll ever need on valuation multiples. We assume that a peer group of comparable firms for which the market value is available can be used as a proxy for the valuation of the company we are evaluating right now. The purpose of this paper is to find out which valuation methods are available for valuing metals and mining companies and explain why these companies are valued this way in practice.
Get a grip on grp reprinted with permissions rom business valuation resources, llc in general, ebitda multiples are largely a function of growth and risk, whereas sales multiples are a. The process of valuation using multiples involves certain steps and. We find that multiples derived from forward earnings explain stock prices remarkably well for most firms. This includes company sales, succession arrangements and spinoffs as well as private or public acquisitions and mergers. The company valuation of ubs group ag according to these metrics is above the market valuation of its sector. A valuation technique in which the market value of the shares is estimated by comparing the subject company to companies which have been sold recent genuine offers or whose ownership interests are publicly traded when there is a liquid and active market. What the primer does an especially good job is the derivations of the target multiples in the appendix. A target multiple is the maximum multiple of earnings, ebitda, etc that you could pay, given certain underlying value drivers, and receive a fair return on your investment. The paper takes the reader through different stages of metals and mining companies from mineral exploration to mine production and provides an overview of. Valuation multiples are supposed to be simplistic and give you an idea of what your business is worth. The challenges of private equity investment valuation. A primer 2001,ubs warburg, 2001 business valuation 101, theresa shonat. Equity valuation using multiples by jing liu, doron nissim. Equity valuation using multiples 7 taxes, depreciation, and amortization, and historical accrualbased measures, such as sales, earnings, and book value of equity.
Unfortunately, most guides, textbooks, and websites do a very poor job of explaining these topics. Our report analyzes, by subindustry and geographic location, the deal volumes, ebitda valuation multiples paid, and stock prices for. He derives intrinsic multiples from fundamental equity valuation models and explains why some firms deserve higher or lower multiples than its peers. Ltd an affiliate of ubs ag ubs ag its subsidiaries branches and affiliates are seoul national.
To find good valuation multiples, you must find wellsuited comparable companies multiples are driven by 2 things. The valuation of a business is the process of determining the current worth of a business, using objective measures, and evaluating all aspects of the business. Additionally there is a pdf attached about valuing financial services firms from nyu stern. Revenue for accounting, tax preparation, bookkeeping, and payroll services in the u. A valuation multiple is simply an expression of market value relative to a key statistic that is assumed to relate to that value. Since both companies have identical cash earnings they have the same value and should trade at the. Nyu lesson 07 valaution intro multiples ev value drivers. Applications of market multiples, such as pricetoearnings or markettobook value ratios. Guide to understanding valuation multiples in valuation. Fundamental principles of relative valuation 637 chapter 18. The valuation model proposes an explicit methodology to evaluate the duration of these accounts. The company valuation of ubs group ag according to these metrics is consistent with the market valuation of its sector. As of last week, i was sure that every banker on the street knows about the famous ubs valuation multiples primer.
For instance, if we want to estimate the fair value of ubs in a. Heres an intuitive perspective on valuing financial services firms. However, they did not benefit as much as the financial sector from the post. Valuation multiple equity and enterprise valuation mutiples. This gives rise to the use of multiple approaches that must be reconciled. The multiples approach is a valuation theory based on the idea that similar assets sell at similar prices. Valuation and accounting research 2 3 ubs warburg standard valuation multiples price earnings ratio price to cash earnings dividend yield price to book ev to sales ev to ebitda ev to ebit ev to operating free cash flow ev to invested capital equity multiples enterprise value. Valuation multiples multiples analysis multiples analysis involves valuing a company with the use of a multiple. Transaction multiples are a type of financial metrics used to value a company.
If you are preparing for interviews and want to be prepared for questions like which multiples are best to value a bank. On the faculty of the hotel school since 1988, he has devoted his career to research and teaching in the. Eps, return on equity roe, book value bv, p e, p bv, and so on. This assumes that a ratio comparing value to some firmspecific. We examine the valuation performance of a comprehensive list of pricing multiples. February 2018 business valuation update 3 market multiple adjustments. Reprinted with permissions rom business valuation resources, llc in general, ebitda multiples are largely a function of growth and risk, whereas sales multiples are a function of growth, risk, and profitability. A business valuation might include an analysis of the companys management, its capital structure, its future earnings prospects, or the market value of its assets. The pearnings ntm ratio of ubs group ag is significantly lower than its historical 5year average. Valuation multiples are a key component of equity analysis their successful use depends upon a clear understanding of the factors that drive them objectives of this presentation. Multiples and their valuation accuracy in european equity markets andreas schreiner and klaus spremann august, 2007 we would like to thank david aboody, thomas berndt, jan bernhard, pascal gantenbein, sebastian lang, jing liu, jacob thomas, and seminar participants at ucla, university of innsbruck, university of. Therefore, salesrelated multiples have an added factor, profitability, to analyze. Valuation multiples are a key component of equity analysis.
Traditional valuation multiples are often used to calculate terminal value. Based on the weaknesses of the standard multiples valuation method, schreiner systematically develops a list of criteria for the selec. Without understanding the multiples and what they mean, you are only betting on the qualitative aspect or the story of the stock, without understanding. Msci acwi pme vc has outperformed public markets in 15 out of 22 vintage years between 1993 and 2014 10 10 30 50 70 90 110 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 20 i r r in % cambridge associates us vcpooledirr russell 2000 pme source. Fortunately, many years ago the venerable ubs wrote a great broker report which gets into valuation multiples in a great level of detail. A timely update to the global bestselling book on investment banking and valuation in the constantly evolving world of finance, a solid technical foundation is an essential tool for success.
I also study the valuation accuracy of the three most widely used multiples used within these methods, the. It is all relative multiples, comparables and value. Hotel valuation, like all real estate valuation, must be seen in the context of establishing a point estimate that represents the value of a unique, illiquid asset in an environment with noisy and conflicting information. This can be an advantage when it is important that the price re. Instead of traditional metrics lik e revenue and ebitda, you list the metrics and multiples that are relevant to a bank. The first graph relates a survey carried out in 2012 by bcg ubs while the second graph summarizes a latest survey released in 2016 by kpmg. Multiples are used in research reports and stock recommendations of both buyside. Discounted cash flow dcf analysis pricing tips and tools. Multiples are the proportion of one financial metric i. Sectorspecific multiples while earnings, book value and revenue multiples are multiples that can be.
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