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It was well understood in the 1800s and widely used by U.S. courts during the 20th century, although it has recently declined as Discounted Cash Flow and more direct market-based methods have become more popular. "Comparable company analysis", closely related, was introduced by economists [citation needed] at Harvard Business School in the 1930s.
The main approach of the method is to look at similar or comparable transactions where the acquisition target has a similar business model and similar client base to the company being evaluated. The value of a business is then arrived at using a similar multiple of the company's EBITDA as demonstrated by multiples of EBITDA achieved in past ...
Relative valuation also called valuation using multiples is the notion of comparing the price of an asset to the market value of similar assets. In the field of securities investment, the idea has led to important practical tools, which could presumably spot pricing anomalies.
The guideline public company method entails a comparison of the subject company to publicly traded companies. The comparison is generally based on published data regarding the public companies' stock prices and earnings, sales, or revenues, which is expressed as a fraction known as a multiple. If the guideline public companies are sufficiently ...
The method is used particularly in the valuation of growth companies which often do not have historical financial results that can be used for meaningful comparable company analysis. Multiplying actual financial results against a comparable valuation multiple often yields a value for the company that is objectively too low given the prospects ...
The third-most common method of estimating the value of a company looks to the assets and liabilities of the business. At a minimum, a solvent company could shut down operations, sell off the assets, and pay the creditors. Any cash that would remain establishes a floor value for the company. This method is known as the net asset value or
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The public market equivalent (PME) is a collection of performance measures developed to assess private equity funds and to overcome the limitations of the internal rate of return and multiple on invested capital measurements. While the calculations differ, they all attempt to measure the return from deploying a private equity fund's cash flows ...