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Market Multiples and the Valuation of Cyclical Companies

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  • Emanuel Bagna
  • Enrico Cotta Ramusino

Abstract

Market multiples are more often used than studied. Equity analysts, investment bankers and other practitioners widely use market multiples to estimate the value of companies. Nevertheless, literature about multiples is not as rich as the wide use of these valuation tools would suggest. This paper, focusing on European listed companies, investigates how multiples can be used in the valuation of cyclical companies, a much less investigated research topic. We test the accuracy of multiples to understand whether their performance in valuing cyclical companies is better, worse or equal to the performance found in prior studies, where both cyclical and non cyclical companies are analyzed without distinguishing between them. We also attempt to verify whether the way in which multiples are calculated significantly affects the accuracy of estimation. Our aim is to develop a valuation approach consistent with valuation theory and helpful in everyday practice.

Suggested Citation

  • Emanuel Bagna & Enrico Cotta Ramusino, 2017. "Market Multiples and the Valuation of Cyclical Companies," International Business Research, Canadian Center of Science and Education, vol. 10(12), pages 246-266, December.
    • Handle: RePEc:ibn:ibrjnl:v:10:y:2017:i:12:p:246-266
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    References listed on IDEAS

    as
    1. Sanjeev Bhojraj & Charles M. C. Lee, 2002. "Who Is My Peer? A Valuation‐Based Approach to the Selection of Comparable Firms," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 407-439, May.
    2. Alford, Aw, 1992. "The Effect Of The Set Of Comparable Firms On The Accuracy Of The Price Earnings Valuation Method," Journal of Accounting Research, Wiley Blackwell, vol. 30(1), pages 94-108.
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    Cited by:

    1. Emanuel Bagna, 2021. "Valuation of Non-Performing Loans under Discussion," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(12), pages 1-25, July.
    2. Dimiter Nenkov, 2024. "“The Magnificent Seven” Technology Stocks and Their Impact on the S&P 500: A Review 4 Years Later," Finance, Accounting and Business Analysis, University of National and World Economy, Institute for Economics and Politics, vol. 6(2), pages 180-195, December.
    3. Emanuel Bagna, 2021. "Is There Any Value in the Banks Brand?," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(12), pages 261-261, July.
    4. Dimiter Nenkov, 2021. "The S&P 500 Current Record-High Levels against Fundamental PE and PBV Ratios," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 8, pages 93-113.
    5. Emanuel Bagna, 2020. "The Liquidity Discount in the Italian Market," International Business Research, Canadian Center of Science and Education, vol. 13(11), pages 137-137, November.

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    More about this item

    Keywords

    valutation; valuation multiple; cyclical companies;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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