Year of Graduation
Nonlinear Combinations of Multiples Used to Improve the Business Valuation Accuracy
Financial Markets and Financial Institutions
Due to being easy to use, market approach is the most often used approach to a business value estimation. Obviously, the output of this approach is an indicative approximation of a business market value. At the same time, at a fundamental level, there is no well-established opinion on how close this indicative value is to the true market value. A number of authors show that traditionally used individual multiples are not the most accurate estimation tool within the market approach: linear combinations can increase the accuracy of market value estimation. However, these authors admit that linear combinations are not the only way to increase the accuracy implying the further nonlinear model implementation. This paper demonstrates that using more complicated methodology for calculating both the market multiple and the final estimation by means of combining different multiples outputs provides even greater accuracy in market value estimation. Also, this paper considers the issue of whether nonlinear structures are worth implementing in terms of improving prediction accuracy. In accordance with the results, complicating the methodology of market approach using nonlinear structures can improve the accuracy of estimating the current market value, but is not a reliable method to increase the predictive power of further market value dynamics.