The use of accounting information in conjunction with comparable firm multiples is widely recommended for valuing initial public offerings (IPOs). We find that the price–earnings ( P / E ), market-to-book, and price-to-sales multiples of comparable firms have only modest predictive ability without further adjustments. This is largely due to the wide variation of these ratios for young firms within an industry. P / E multiples using forecasted earnings result in much more accurate valuations than multiples using trailing earnings.
Journal of Financial Economics – Elsevier
Published: Sep 1, 1999
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