Year of Graduation
Forward Multiplies Used in Business Valuation as a Factor of Improving Accuracy
This paper examines whether it is possible to increase the accuracy of equity valuation using forward multiples in comparison with historical ones. Despite the fact that a number of researchers obtain results in accordance to which forward multiples are superior among all multiples in terms of accuracy, there are also some who hold to the opposite position. The reason is that forward multiples are based on analysts' value drivers forecasts and errors related to these predictions might lead to higher valuation mismathces. The paper provides the evidence on the accuracy of different single, forward and combinations of multiples. The results show that there is no any strict rule stating forward multiples as a more accurate valuation tool in comparison with historical multiples. However, when it comes to EV estimating combination of forward multiples turned to be the most accurate in terms of accuracy.