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Banking Essentials - Part I
This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.
Greenwashing
Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.
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Tackling the Cost of Living Crisis
In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.
CSR and Sustainability in Financial Services
In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.
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Categories
Discover our Courses
Featured Pathways
More pathways
Banking Essentials - Part I
This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.
Greenwashing
Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.
More pathways
Ready to get started?
Plans & Membership
Find the right plan for you
Our Platform
Expert led content
+1,000 expert presented, on-demand video modules
Learning analytics
Keep track of learning progress with our comprehensive data
Interactive learning
Engage with our video hotspots and knowledge check-ins
Testing & certification
Gain CPD / CPE credits and professional certification
Managed learning
Build, scale and manage your organisation’s learning
Integrations
Connect Finance Unlocked to your current platform
Featured Content
More featured content
Tackling the Cost of Living Crisis
In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.
CSR and Sustainability in Financial Services
In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.
More featured content
Ready to get started?
Our Solutions
About Us
Testimonials
More testimonials
Mark Homans
Our sky high NPS following learner feedback speaks for itself - this platform has delivered a lot of value.
Fiona Quinn
Learning is accessible and the tool assists in the continued development of all our employees. It is a fantastic tool for our business!
More testimonials
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Pitfalls of EV and Equity Multiples
Sarah Martin
30 years: Corporate Valuations
In the previous videos, Sarah discussed enterprise and equity valuation multiples. In this video, Sarah concludes these topics by explaining the drawbacks of multiple valuations. She first explains the pitfalls common to both enterprise and equity multiples. Finally she touches upon some pitfalls specific to equity multiples.
In the previous videos, Sarah discussed enterprise and equity valuation multiples. In this video, Sarah concludes these topics by explaining the drawbacks of multiple valuations. She first explains the pitfalls common to both enterprise and equity multiples. Finally she touches upon some pitfalls specific to equity multiples.
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Pitfalls of EV and Equity Multiples
8 mins 27 secs
Multiples are used for deriving valuations for different purposes by different groups of users. Whilst their main advantage is that they provide relative valuations (compare one investment with another), multiples do have a number of pitfalls. They come with a host of drawbacks, some of which are common to both enterprise and equity multiples and some that are specific to one of the two. It is important to learn these drawbacks and understand why some investors prefer other valuation methods such as DCF.
Key learning objectives:
Understand the drawbacks common to enterprise value and equity value multiples
Understand the drawbacks specific to equity valuations (PE ratios)
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- Assume constant or average levels of our key value driver variables (growth, WACC and ROIC) - It is not possible to capture changes in key value drivers.
- Do not reflect valuation impact of one-off items such as a restructuring or major asset write-downs.
- As they are based on earnings, they can be manipulated so if we use and end up with erroneous valuations.
- If the firms in the peer group used to derive sector multiple are very different to the firm being valued, the valuation will be distorted and lessens the validity of their relative valuations.
- Multiple valuations can be difficult to interpret. For example, a high multiple does not necessarily mean that the firm’s equity is overpriced and a low multiple does not necessarily mean that the firm’s equity is cheap. A firm whose EBITDA multiple is high could be a better investment than a firm with a low EBITDA multiple if its growth outlook or WACC or ROIC are superior.
- They do not work for loss-making firms as multiples do not take account of the time value of money or the additional losses that may be incurred before the firm becomes profitable.
- They are not helpful when the firm’s or the sector’s earnings have fallen sharply and a recovery is expected. For example during financial crises or a pandemic, multiples became distorted and difficult to interpret
- PE ratio is based on net profit after tax and mixes up both the operating performance and capital structure.
- A high PE ratio could also be caused not by high ROIC, high growth and/or a low WACC but by a low level of net profit due in turn to a highly leveraged capital structure and high interest charges.
- A firm’s PE ratio will be biased upwards if it has high net cash balances on which it is earning a low rate of interest after tax.
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Sarah Martin
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