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Application of Forward Multiples in Business Valuation

Student: Vladislav Seliverstov

Supervisor: Dmitry Tikhomirov

Faculty: Faculty of Economic Sciences

Educational Programme: Corporate Finance (Master)

Year of Graduation: 2020

Comparable companies analysis is the most popular approach in business valuation due to its ease of use. This paper proposes a detailed study of the nature of forward multipliers calculated on the basis of consensus forecasts of financials provided by investment banks, which in turn are the result of the application of fundamental analysis tools. In addition, it is proposed to study the determinants of estimation errors when using forward multipliers. The results obtained imply a more accurate valuation when using forward EV/ EBITDA, EV/EBIT and P/E than using their historical counterparts. A statistically significant dependence of the valuation errors on the size of the company’s assets, the level of financial leverage, return on assets and the P/B ratio was also found.

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