Series 79 practice questionmediumComparable Company Analysis
If one comparable company has a significantly higher EV/EBITDA multiple due to an ongoing industry boom, how should the analyst treat this outlier?
- AExclude the company from the peer set
- BGive it the same weight as other peers
- CUse the mean rather than the median of all multiples
- DConsider removing or de-weighting it to avoid skewing the valuation✓ Correct answer
Explanation
Why D — Consider removing or de-weighting it to avoid skewing the valuation
Outliers due to abnormal market conditions should be removed or de-weighted to avoid distorting the valuation range. Blindly including them can lead to overvalued or undervalued conclusions.
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