Valuation using multiples: most common errors Abstract

Nº 3 / 2017 - julio - septiembre

Valuation using multiples: most common errors

Alfonso A. Rojo Ramírez
Universidad de Almería
Rodrigo Recondo Porrúa
Instituto de Capital Riesgo (INCARI)


Company valuation is a professional activity aimed at reckoning the most reasonable value of the firm. Due to the level of information and required knowledge, this is one of the most important activities to be carried out by business analysts, advisors, valuers and company managers and requires a sound preparation of the expert and it implies a great responsibility.
One of the methods used professionally is the relative valuation or valuation on multiples that it is used jointly with the discounting cash-flow method. This technique not only is widespread among professionals, but it is also present in one form or another in the international valuation guides.
The purpose of this article is to show the possible errors in which professionals could incur when they use this technique which may be associated to the parameter used, the multiple applied, the concept of net financial debt and the lack of marketability discount.
Undoubtedly this relationship does not intend to be an exhaustive guide to errors, but an element of reflection both for valuation scholarsand practitioners in their important work.

Keywords: Valuation on multiples, Relative valuation, Errors in company valuation.