Say you have a set of comps, and you want to find the average revenue or PE multiple. Do you take a straight average or do you take a weighted average (based on each company's size)?
Why or why not?
Thanks.
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Unweighted Mean.
The whole point of taking a comp set is to adjust size out of the equation, making it easier to compare companies in the same sector, independently of their size. Of course it's an imperfect way to completely factor out the bias of size, but ratios/multiples are fairly effective as a proxies.
Weighting said multiples would be entirely counter-productive to purpose.
Agreed, that's actually exactly what i thought. Is there a reference/rule to this that you can point me to? I'd like to show management.
Thanks.
its just common practice. if the set is big enough typically look at the average and median and come up with a range around that
I suggest including the median as well. Most multiples that you would apply or use to interpret market info are medians. Also, note what Nouveau Richie said up top. Ive seen this question countless times. The multiple is used to filter out different biases.
I suggest including the median as well. Most multiples that you would apply or use to interpret market info are medians. Also, note what Nouveau Richie said up top. Ive seen this question countless times. The multiple is used to filter out different biases.
median
not to beat on a dead horse, but does anyone have any reference/rule/website/formula/textbook that says this? Even if its on someone reputable's blog or something.
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