Best Practices in Applying Multiples for Valuation Purposes

A literature review suggests eight empirical implementation issues to which practitioners should give increased attention. Implementation issues include how comparable firms are selected, the use of reported versus forecasted earnings, and the most suitable way of calculating averages. We identify a more effective way to handle each implementation issue in order to enhance the accuracy of valuation outputs. By synthesizing the main empirical findings and thereby identifying best practices when applying market multiples, we expect to help analysts, portfolios managers, and investment bankers make more informed decisions when accessing a firm’s value.