Multiplier Method for the Evaluation of Investment Attractiveness of Russian Companies

<p>Crucial step in the decision making process by investors is the evaluation of investment attractiveness of a company. This concept is characterized by a set of by quantitative indicators and qualitative components, which cover various aspects of the business and determine the possibility of maximizing the return to the investor at a certain level of risk. One approach to the investment attractiveness is the method of multipliers. The most important advantage of this method is that it evaluates the company instantly.</p><p>The purpose of this work: checking the effectiveness of the method of multipliers for the evaluation of investment attractiveness of Russian companies.</p><p>The paper had the following main objectives: to study the theoretical aspects of the concept of investment attractiveness, to identify the main methods of determining it, based on the existing Russian and foreign researchers to study in detail the method of multipliers, formulate and test the basic hypothesis.</p><p>The study was based on two hypotheses.</p><p><strong>H1:</strong> <em>the share price of undervalued companies is growing since the assessment.</em></p><p><strong>H2:</strong> <em>companies with low values ​​of the multipliers (undervalued) grow faster than with high multipliers (overpriced).</em></p><p>To test these hypotheses, in the period from 2009 to 2013 companies from two branches of the Russian economy were analyzed: oil and gas, banking. In each industry public companies with the most liquid securities were selected.</p><p>For oil and gas industry it was used market multiples P/E, P/S, EV/EBITDA and industry-specific multiplier EV/IC. For the banking industry multiples P/E, P/S and P/BV were used.</p><p>Multiples are first analyzed together by companies, and then compared with the average value in the industry. To test the first hypothesis, it was analyzed charts of stock prices, for the second - calculated growth in stock prices relative to the baseline in 2009.</p><p>The study first hypothesis was not confirmed. The conclusion of the research is the following. There is no clear relationship between the company and the underestimation of the price action on shares of this company. This can be explained by the fact that the share price is influenced by many other factors that for investors may be more important than just score multipliers. The second hypothesis was also rejected. This is explained by the fact that today, Russia&#39;s financial system is relatively poorly developed, the financial market is young, there is a lack of data due to the closure of companies and the reluctance to publicly provide their financial results and activity reports, listing some of the companies on the stock exchanges is only relatively recently time, there is political and economic instability.</p><p>Thus, it was concluded that the application of the method of multipliers for Russian companies underperforms despite its several advantages over other approaches. Moreover, for a more complete and accurate analysis of investment attractiveness of companies it should be used other approaches in addition to the method of multipliers.</p>