Multiplexing approaches are now being actively developed as part of the management's strategy to increase shareholder value.
The advantages of this approach include a relatively fast assessment and reliance on market information.
The company's value is calculated based on the current market situation. The analyst's role here is to make a multiplier correction to the market price of a share or the company as a whole based on market data on its analogue or analogues in the industry.
Western financiers call the comparative approach "a method of quick and dirty estimation", but it is the one that gives the most accurate assessment of the market price at the moment assessment or adjustment of other methods, as the terms of transactions are dependent on the market situation and the policy of the Bank of Russia.
The approach includes three main methods: the peer-to-peer (capital market) method, the transaction (sales) method and the method of industry ratios.
The method of the similar company is based on the data of stock market quotes and financial ratios. They allow conducting selection of companies-analogues of the bank among the organizations and to calculate the necessary multipliers.
The multipliers are equal to the market value of a share or capitalization of the whole company referred to any financial indicator. To get the value of the bank it is necessary to multiply the multiplier by the financial indicator of the bank.
The method applies the length of minority stakes, as it is based on the price of one share.
The difference between the method of sales in the amount of the shareholding is assessed either as a controlling or a full block of shares. Among multiplier methods, it gives the most accurate result, as it takes into account the premium for control elements when buying significant blocks of shares.
The method of industry coefficients is based on the compliance of a credit institution's price with certain industry parameters calculated on the basis of financial statistics for a long period. T.A. Vladimirova and A.A. Khlebnikov note: "As a result of many years of generalization, countries with developed market economies have developed quite simple formulas for determining the business value of various companies, including banks. It is obvious that it is too early to speak about the application of the method of sectoral coefficients in Russia today".
In general, the comparative approach can be used in the process of negotiations on the acquisition of companies as a whole or large blocks of shares, as it gives the parties convincing arguments for the assessment of the value.
Application of the multiplier approach is performed as follows:
- Market and financial information is collected for subsequent analysis;
- Similar companies are defined;
- financial analysis is performed;
- The sectoral multipliers are calculated;
- an evaluative multiplier is selected;
- the value of the company is determined.
Market information - exchange quotations and number of shares in circulation, price of large blocks of shares of the compared banks. Financial information - reporting of all banks considered in the process: balance sheet, profit and loss statement, cash flow, etc.
On the basis of the obtained market data, similar banks are selected. Then they are checked according to financial criteria. The degree of their correspondence to each other is determined. Analogues are selected.
The basic factors of compliance can be called the country where the company operates, specialization in the industry, time factor - banks are actively working at the moment.
Financial information is the most important in the process of selection of analogues. With its help it is possible to establish the rating of the bank being assessed among the analogues, to determine the degree of adequacy of the multiplier to the purposes of a specific assessment. It also makes it possible to make final adjustments to the value of the business.
Market multipliers are calculated in several stages:-
After selection of analogues, the market price of shares is determined;
- the denominator of the multiplier - profit, book value - is determined, which can have an interval value (per year, quarter) or on a specific date.
In the world practice the following multipliers are most often used:
- P/S is the ratio of the company's market value to sales revenue for the previous year;
- P/CF - ratio of the company's market value to the cash flow from operating activities for the past year;
- P/EBITDA - ratio of the market value of the company to the profit before interest, taxes and depreciation for the past year without taking into account non-recurring expenses and income;
- P/E - ratio of the company's market value to the net profit before tax for the previous year;
- P/BV - ratio of the market value of the company to the book value of its own capital at the end of the current period.