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04 - Analyzing Multiples (VC)

04 - Analyzing Multiples (VC) - Private Equity and Venture...

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Private Equity and Venture Capital Using Multiples to Triangulate Valuation Using Multiples to Triangulate Valuation Professor David Wessels ©2008 The Wharton School of the University of Pennsylvania 3620 Locust Walk, Philadelphia PA 19104
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Private Equity and Venture Capital Using Multiples to Triangulate Valuation A careful multiples analysis—comparing a company’s multiples versus those of similar companies—can be useful in improving cashflow forecasts and testing the credibility of DCF-based valuations. Multiples address three important issues: 1 How plausible are forecasted cash flows? 1. 2. Is the company strategically positioned to create more value than its peers? 3. Why is one company’s valuation higher or lower on a relative basis versus its competitors? Multiple analysis is only useful when performed accurately. Poorly performed multiple analysis can lead to misleading conclusions. Professor David Wessels The Wharton School of the University of Pennsylvania 2
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