Valuation multiples

Description
After completing a discounted cash flow (DCF) analysis to value operations, as well as valuing non-operating assets, debt, debt-equivalents, and hybrid claims to calculate equity value, the next step is to analyze valuation multiples. This allows for testing the valuation and benchmarking it against comparable companies. Valuation multiples are commonly used in finance as a method to value a company by comparing its financial metrics to those of similar companies in the same industry. To use valuation multiples, one should first identify comparable companies with similar size, industry, growth prospects, and financial characteristics. Then, select appropriate multiples such as price-to-earnings, enterprise value-to-sales, or enterprise value-to-EBITDA, which reflect the company's financial performance and the industry's standard valuation methods. Once the appropriate multiples have been determined, calculate the multiples for the chosen peer group and compare them to the target company's multiples. It's important to remember that multiples are simply a reflection of a company's financial performance and growth prospects. Therefore, to determine which company is more attractive, you need to look beyond the multiples and examine the key value drivers such as growth prospects, return on invested capital, and risk (cost of capital).


Two sets of multiples can be created:
1) Multiples based on the current stock price
2) Multiples based on the forward stock price
Each set of multiples has its own benefits / challenges and reasons for use.


This model creates valuation multiples, current and forward. It also shows implied growth rates and profitability metrics which drive the multiples.


Note:
This template does not create projections, the projections and valuation inputs are sourced from a comprehensive valuation model (see Disney as an example), this template only shows how to properly create valuation multiples.