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Use the multiple of earnings method to estimate the value of AFC's equity. As a first pass, use the average projected earnings over the first
Use the multiple of earnings method to estimate the value of AFC's equity. As a first pass, use the average projected earnings over the first five years as the best estimate of earnings. Then assume the stock of publicly traded firms with somewhat similar technologies sells at an average of eight times earnings.
Multiple of Earnings Method. To use this approach you first determine a company's projected average annual earnings. If historical income statements are available and it is believed that the past will be indicative of the future, then use the average earnings for a two to five year period as the company's projected annual earnings. Next, find the pricetoearnings ratios PE ratios of public companies and recently sold private companies that are in the same industry and are similar in size to the firm being valued. Based on comparisons of the company being valued and the
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