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Damodaran on Relval

Damodaran on Relval

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Published by giovanniromeo904392

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Categories:Business/Law, Finance
Published by: giovanniromeo904392 on Mar 17, 2009
Copyright:Attribution Non-commercial

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12/30/2010

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Aswath Damodaran1
Equity Instruments & Markets: Part IIB40.3331Relative Valuation
Aswath Damodaran
 
Aswath Damodaran
Why relative valuation?
“If you think I’m crazy, you should see the guy who lives across the hall”
 Jerry Seinfeld talking about Kramer in a Seinfeld episode
“ A little inaccuracy sometimes saves tons of explanation”H.H. Munro
 
Aswath Damodaran
What is relative valuation?
n
In relative valuation, the value of an asset is compared to the valuesassessed by the market for similar or comparable assets.
n
To do relative valuation then,
we need to identify comparable assets and obtain market values for theseassetsconvert these market values into standardized values, since the absoluteprices cannot be compared This process of standardizing creates pricemultiples.compare the standardized value or multiple for the asset being analyzed tothe standardized values for comparable asset, controlling for anydifferences between the firms that might affect the multiple, to judgewhether the asset is under or over valued

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