Proceedings

Although financial theory criticizes the patrimonial approaches used in company
evaluations, characterizing them as limiting, they are a practical solution, often used,
and has a low degree of uncertainty.
1.3. The comparative method
According to this approach, value is computed through the relation with the
dimension of certain indicators provided by the companies in the same activity field
as the subject company. This is a simple, practical, fast, and objective method because
it avoids using discount rates whose estimation is always delicate (Thauvron, 2007).
However, for the efficient application of this method, the pertinence of the sample of
comparable economic agents is particularly important.
Also called the multiples method, it is based on computing ratios (multiples) at the
level of the selected companies. This calculus uses measures such as the own capital,
the sales figure, the net result, the free cash flows, the current result, etc. The model
uses the average of the multiplication at the sample level in order to correct the
measure identified for establishing the value of the economic entity.
The development of the evaluation process can be synthesized in the following stages:
defining the sample, selecting and calculating the multiples, and applying the ratios on
the selected indicator.
The diversity of the methods, as well as their various degrees of relevance in
establishing appropriate values for the economic entities, have generatd intense
debates reflected in numerous studies.
As a result, Gollier and Weitzman (2010) wonder over what period financial
predictions can be made, when the discount rate used is a subjective measure. They
answer by stating that “we have to admit the non-existence of a well-supported
principle that allows us to extrapolate a ratio in the past on the future benefits, over a
long period of time”. It is also possible to discuss the extent to which the discount rate
objectively reflects the cost of the invested capitals according to the computing
method. One of the most important equations in monetary theory and practice is that
of the weighted average cost of capital (WACC), from which results the cash flows
discount rate. Miller (2006) notices the relativity of the computing method of the
mentioned rate, presenting an improved version, which, in the author’s opinion,
generates significantly higher results. The funding of investment projects determines,
according to accounting norms, a capitalization of the interests. This process does not
generate, at the same moment, a decrease of the taxes, which affects the relevance of
the result provided by the calculus of the weighted average cost of capital after tax
(Pierru and Babusiaux, 2010).
In the same tendecy to explain and increase the reliability of the field, Booth (2007)
suggests a method for computing the discount rate specific to each evaluation method.
Richardson and Tinaikar (2004) notice the tight connection between accounting and
the company evaluation models, stressing the interrelations between them, both at a
procedural level and at that of the basic objective of providing users with reliable
information. We can say that the evaluation methods are models for the accounting of
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