1. Introduction to Market-Based Valuation

• Definition of market-based valuation.
• Importance of price and enterprise value multiples.

2. Valuation Indicators

• Types of valuation multiples:
  • Price Multiples.
  • Enterprise Value (EV) Multiples.

3. Methods for Valuation Multiples

• Method of Comparables
  • Economic rationale: The law of one price.
• Method Based on Forecasted Fundamentals
  • Reflecting firm fundamentals and future cash flows.
• Justified Price Multiples
  • Determined using comparables or fundamentals.

4. Price-to-Earnings (P/E) Multiples

• Rationales:
  • EPS as a driver of value.
  • Widely used and related to stock returns.
• Drawbacks:
  • Issues with zero/negative earnings.
  • Distortion from transitory earnings or management discretion.
• Types of P/E Ratios:
  • Trailing P/E.
  • Forward P/E.

5. Calculating Forward P/E

• EPS for the next four quarters, NTM, or fiscal year.
• Examples provided for specific scenarios.

6. Issues in Calculating EPS

• EPS dilution.
• Adjustments for underlying earnings and normalization.
• Differences in accounting methods.

7. Normalized Earnings

• Methods:
  • Historical average EPS.
  • Average ROE method.

8. Justified P/E from Fundamentals

• Formulas for forward and trailing P/E based on fundamentals.
• Examples with regression-based predictions.

9. Price-to-Book Value (P/B) Multiple

• Rationales:
  • Book value positivity and stability.
  • Suitability for specific industries or firms.
• Formula for justified P/B.

10. Price-to-Sales (P/S) Multiple

• Rationales:
  • Stability and applicability to non-earning firms.
• Formula and examples.

11. Enterprise Value (EV) Multiples

• Definition of EV and key multiples:
  • EV/EBITDA, EV/FCFF, EV/EBITA, EV/S.
• Issues and cross-country comparisons:
  • Differences under US GAAP vs. IFRS.
  • Impact of inflation on justified multiples.

12. Inverse Price Ratios

• Concept and practical use in valuation.