Do Damodaran's Multiples Value a Company Accurately? Evidence from Germany

Abstract

The article examines the market valuation approach using industry market multiples as this method has recently attracted increasing interest from appraisers. It investigates whether constructing one’s own industry market multiples for company valuation which are based on a market approach provides better results than using Damodaran’s market multiples in terms of the resulting valuation accuracy. The study uses a sample of 162 German companies publicly traded in 2010–2019 and analyses some of the most frequently adopted multiples: EV/EBITDA, P/BV and P/E. Moreover, the presented results may guide the appraisers in selecting the most appropriate valuation approach. Based on the statistical error analysis, the results prove better valuation accuracy of the own-built market multiples compared to Damodaran’s multiples. Nevertheless, this study is limited to German listed companies and should not be relied upon with respect to other European markets. Furthermore, its scope is limited to only 15 industries which are listed by Damodaran and subsequently included in the test sample.