EV/EBITDA

Abstract: The price-earnings (PIE) valuation method estimates a firm's stock price as the product of its earnings and the PIE multiple determined from a set of comparable firms. This paper studies empirically the accuracy of the PIE valuation method when comparable firms are selected on the basis of industry, risk, and earnings growth. The effect of adjusting earnings for cross-sectional differences in leverage is also examined.

Abstract: We evaluated various multiples practitioners use to estimate company value. We found, first, that the asset multiple (market value to book value of assets) generally generates more precise and less...

Abstract: This paper evaluates the valuation accuracy of the price-earnings (P/E), the price-book (P/B) and a combined price-earnings and price-book (P/E-P/B) benchmark valuation methods. Performance of the benchmark valuation methods relies on the definition of comparable firms. In this paper, comparable firms are selected based on industry membership, size and return on equity as well as combinations of industry membership with size and with return on equity. We find that within the P/E and P/B benchmark valuation methods, the best definition of the comparable firms are based on industry membership combined with return on equity. However, only the industry membership is necessary to define the comparable firms for the combined P/E-P/B method. In sum, the results suggest that, when firm's value is unknown, the combined P/E-P/B valuation approach selecting comparable firms based on industry membership performs the best among all the approaches evaluated in this paper. We also find that the P/E benchmark valuation method performs better than the P/B benchmark valuation method and the combined method outperforms either the P/E or the P/B method. These results imply that earnings are more important than book value as a single-number firm valuator over our sample years (from 1973 to 1992) and that both earnings and book values are value relevant, one does not substitute perfectly for the other.

Abstract: We compare the investment performance of portfolios sorted on different valuation measures. EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.