Application of Multiple Evaluation Models in Brazil

Abstract

Based on two different samples, this article tests the performance of a number of Value Drivers commonly used for evaluating companies by finance practitioners, through simple regression models of cross-section type which estimate the parameters associated to each Value Driver, denominated Market Multiples. We are able to diagnose the behavior of several multiples in the period 1994-2004, with an outlook also on the particularities of the economic activities performed by the sample companies (and their impacts on the performance) through a subsequent analysis with segregation of companies in the sample by sectors. Extrapolating simple multiples evaluation standards from analysts of the main financial institutions in Brazil, we find that adjusting the ratio formulation to allow for an intercept does not provide satisfactory results in terms of pricing errors reduction. Results found, in spite of evidencing certain relative and absolute superiority among the multiples, may not be generically representative, given samples limitation.

Keywords

• multiples valuation
• value drivers
• relative value
• market multiples
• peer groups