Applying Comparables Approach for High-tech Companies Valuation

The development of the Internet, scientific discoveries and technological progress have contributed to the rapid growth of different industries such as Healthcare and Internet Technologies. This has led to enhanced attention from potential investors and other market players, but investments in high-tech companies are associated with high investment risks. That is why it is important to make the right valuation. In practice, it is very difficult to estimate the value of such companies using a comparative approach, because there is a significant intangible component, which is hardly reflected in traditional accounting. The result of using comparative approaches is a high error rate for valuation when using any of various multiples. It can be noted that there are several research papers, proving the weak accuracy of valuations for high-tech firms using standard multiples. One of them is the work of Stubbs (2012), where the author detected the relation between the accuracy of the valuation and the significance of the intangible assets. This study indicates that subsequent research should be directed toward the reduction of the error in evaluation thereby increasing its effectiveness. This can be achieved by reducing the sensitivity of the multiples to the intangible assets, and more specifically, to R&D expenditures. The sensitivity to intangible assets causes significant differences in the multiples within a group of companies. Therefore, this research topic is relevant. This paper is aimed to offer an adjusted multiple which better incorporates intangible assets for more efficient valuation of high-tech companies. The following tasks are highlighted: 1. To estimate the degree of impact of intangible assets in assessing the value of high-tech companies. 2. To identify the error in the accounting standards for intangible assets. 3. To highlight the multiples specifically applicable technology company valuation.