This module introduces you to the most popular valuation approach among practitioners: Relative valuation. Its popularity is based on the fact that relative valuation is fairly simple to conduct and very easy to communicate. However, in order to properly apply this method, we need to take a careful look at what valuation multiples actually are and how we can use them to value firms or their equity.
The module proceeds as follows:
1. We start with general considerations about relative valuation
2. We learn how to estimate enterprise value and equity value using multiples
3. We discuss key challenges we face when implementing relative valuation
4. We look at some important aspects when working with the P/E ratio.
For each topic, there is a short reading assignment, followed by some review questions and practice examples.