Think Value

When evaluating organizations with multiples valuation, it is crucial to consider comparable companies. Here, the main components of creating the fundamental formula for valuation are:

EV/EBITA = (1-T) *(1-g/ROIC) / (WACC-g)

or

EV/NOPAT = (1-g/ROIC) / (WACC-g)

These formulas imply that for accurate valuation of multiples, we require comparable organizations that have WACC, ROIC, and g data available for comparative analysis. WACC, being more stable across industries as a benchmark, warrants more attention to ROIC and g.”

The diagram illustrates the arrangement of companies in three categories within the same industry – high, average, and low performers. It is evident from here which companies’ multiples usage leads us to the correct valuation.

#VALUATION – Measuring and Managing the Value of Companies, 7th Edition
McKinsey & Company,
Tim Koller, Marc Goedhart, David Wessels

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