Comparable Trading Multiples - How to value a hospital company?



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Assume you want to value a hospitals company with Rs. 10 crores (100 million) in revenue. If there is another hospital company with Rs. 1,200 crores (12 billion) in revenue and Rs. 500 crores (5 billion) in debt that just got acquired for Rs. 5,000 crores (50 billion), would this transaction be a good comparable for your valuation purposes?

Yes, because both company's are in the same industry - Incorrect

No, because one company has far lesser revenue compared to the other one - Incorrect

No, because one company has a huge amount of debt and the other one is debt free - Correct

Sir, please explain this to me.

2 Answer(s)


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Malvika, When you value a company using comparables method, you should pick similar companies. The 10 crore company in this case has no debt while the 1,200 crore has debt. So because the 1,200 crore company has debt its valuation multiple will be lower that for a company with no debt. Hence you should look for a company that has no debt or very little debt in order to value the 10 crore company

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No, because one company has a huge amount of debt and the other one is debt free

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