TY - JOUR T1 - A Conceptual Framework for Relative Valuation JF - The Journal of Private Equity SP - 29 LP - 32 DO - 10.3905/jpe.2013.16.3.029 VL - 16 IS - 3 AU - Manu Sharma AU - Esha Prashar Y1 - 2013/05/31 UR - https://pm-research.com/content/16/3/29.abstract N2 - The concept of relative valuation has been studied taking into account the equity and value multiples and other factors that affect the under- and overvaluation of stocks in the market. Relative valuation is based on the assumption that the value of an asset equals its market value. To do relative valuation, the prices of similar or comparable assets are taken as variables to estimate the value of an asset and to control possible differences. The relative valuation is based on two fundamental principles. First, the intrinsic value of an asset cannot be estimated by any valuation method, as it is always equal to what the market is willing to pay for the asset depending on its unique characteristics. And second, markets are inefficient and assets are not priced perfectly, but because assets are comparable, errors in pricing can be identified and corrected more easily. Because absolute market prices cannot be compared, they need to be converted into standardized values so that price multiples are created.TOPICS: Private equity, fundamental equity analysis, portfolio construction, statistical methods ER -