1. Aswath Damodaran1 Relative Valuation: Tests

2. Aswath Damodaran2 Information requirements An analyst tells you that he never does DCF valuation because it requires too many assumptions (about cash flows, growth and risk). He argues that it is far simpler to use a multiple (EV/EBITDA, PE etc), obtained by looking at other firms in the sector, to estimate value. Is he right? a.Yes b.No Explain.

3. Aswath Damodaran3 Distributional assumptions… If you estimate the PE ratio for all companies and graph out the frequency distribution, can the distribution be normal? a.Yes b.No Why not? So what?

4. Aswath Damodaran4 Controlling variables? You are trying to decide whether a software company is fairly priced, based upon its PE ratio. The company trades at a PE ratio of 12 and the average for the software sector is 20. Based on this comparison, you would conclude that a.The stock is cheap b.The stock is expensive c.The stock is fairly priced State your implicit assumptions.