An “Enhanced Multiple” Corporate Valuation Model: Theory and Empirical Tests

BVResearch Pro
American Society of Appraisers Business Valuation Review™
Summer 2016 Volume 35, Issue 2 pp. 52-61
Bradford Cornell, PhD
Rajiv Gokhale, MBA
valuation method
discounted cash flow (DCF), cost of equity, capital asset pricing model (CAPM)


In this article, we develop an enhanced corporate valuation model based on the implied cost of equity capital (ICC). We argue that the enhanced method extends the standard market multiples and discounted cash flow (DCF) methods to corporate valuation. Specifically, it incorporates positive aspects of the market comparables and DCF methods while mitigating the shortcomings of both. Unlike the traditional market comparables method, the enhanced method takes account of the full-term structure of earnings forecasts. Unlike the DCF method, it does not require estimation of the cost of equity capital. While other applications of the ICC, such as using it to estimate the cost of equity capital, are reported in the literature, our approach differs in that we do not treat the ICC as a discount rate, but rather as an enhanced multiple that allows estimation of equity value for a company based on publicly available information on projections and market prices for comparable companies and publicly available projections for the company being valued. As such, it avoids the complexity and uncertainty associated with estimating the cost of equity capital. In our empirical tests, we find the enhanced multiple method to be more accurate than either of the two traditional methods.
An “Enhanced Multiple” Corporate Valuation Model: Theory and Empirical Tests
PDF, Size: 123 KB

Copyright American Society of Appraisers

The information contained in this product is based on content obtained by ASA from sources considered to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. BVR and ASA accept no liability for the use of such information which is provided "AS IS" and with no warranties, express or implied.