This study proposes a previously unexplored approach to
the valuation of equity using accounting numbers. The
valuation is carried out in two steps. First, a
valuation anchor is provided by book value of equity or
capitalized earnings. Second, a multiple based on a
value driver of comparable firms, where the value driver
might differ from the item that is used to provide the
anchor, provides an estimate of the premium over the
value anchor. The innovation of this approach is that it
develops the widely-used multiples-based valuation
approach to permit the incorporation of a
company-specific anchor. We examine the valuation
performance of this approach, by reference to the mean
squared valuation error and bias and "explainability"
components thereof. pdf
