Abstract

SARMIENTO SABOGAL, Julio  and  CAYON FALLON, Edgardo. Multiples for the valuation of Colombian firms: analysis of results for the 1998-2002 period. Cuad. Adm. [online]. 2004, vol.17, n.28, pp.111-128. ISSN 0120-3592.

Relative multiple valuation is one of the most widely used firm valuation techniques by financial practitioners in developed economies. However, in emerging countries as Colombia, this technique presents a particular problem. Multiples, which are the basis for relative valuation, are generally based on information gathered in developed economies; a good example of this can be found in Damodaran’s multiples calculations for emerging markets. This approach presents a particular challenge for emerging market practitioners, since there is no effective way to know that, by using relative multiple valuation, the true value of the firm will be reflected. Thus, based on the problem mentioned before, the objectives of this paper are twofold: 1) To calculate the multiples for Colombian firms trading in the Colombian stock market, 2) To empirically test if these multiples truly reflect the market value of the firms included in our study. On the basis of the information gathered in order to conduct our empirical proof and the final results obtained in this analysis, there is some evidence that the relative multiple valuation approach does not seem to reflect the true values of firms in the Colombian case. As a result, we conclude that the relative multiple valuation approach does not truly reflect the market value of firms trading in the Colombian stock market.

Keywords : Firm valuation; relative valuation; multiples; price-profit; PER.

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