Most real-world valuations, including deal pricing, analyst reports and IPOs, rely on relative valuation: valuing a business by comparing it with similar companies using multiples such as P/E, EV/EBITDA and price-to-book.
In this session from his free online valuation class, Prof Damodaran sets out the first principles of using multiples well. He explains how to define a multiple consistently, look at how it is distributed across a sector, understand the fundamentals that drive it, and choose genuinely comparable companies.
It is a natural follow-on to the Introduction to Valuation and Intrinsic Value – Foundation sessions in this section, and essential viewing for anyone using the Market Approach to valuation.