Hi everyone,
There is someting I cannot get regarding the last two questions (q5 & q6). In the test is says that the two multiples (P/B & EV/EBITDA) should be adjusted by 25%, to reflect additional risks concerning the small size of the company. Does it mean to be increased or decreased (i.e. multipled by 0.75 or 1.25)?
In my opinion they should be increased by 25% to make the ratios less attractive. But in the answer both ratios have been decreased. Doesn’t it make them look better, how can this be an adjustment for bearing additional risk? Would be grateful if anyone who has done the test explain me what’s going on.
There is someting I cannot get regarding the last two questions (q5 & q6). In the test is says that the two multiples (P/B & EV/EBITDA) should be adjusted by 25%, to reflect additional risks concerning the small size of the company. Does it mean to be increased or decreased (i.e. multipled by 0.75 or 1.25)?
In my opinion they should be increased by 25% to make the ratios less attractive. But in the answer both ratios have been decreased. Doesn’t it make them look better, how can this be an adjustment for bearing additional risk? Would be grateful if anyone who has done the test explain me what’s going on.
Many thanks Harrogath, this was definately helpful