Using relative valuation methods that require the use of comparable firms is challenging in an international context due to differences in accounting methods, cultures, risk, and growth opportunities. Further, benchmarking is difficult because price multiples for individual firms in the same industry vary widely internationally, and country market price multiples can vary significantly. Common differences in international accounting treatment fall into several categories: goodwill, deferred income taxes, foreign exchange adjustments, R&D, pension expense, and tangible asset revaluations.
The usefulness of all price multiples is affected to some degree by differences in international accounting standards. The least affected are price-to-cash flow ratios (including P/adjusted CFO), while P/B, P/E, P/S, P/EBITDA, and EV/EBITDA will be more seriously affected because they are more affected by management’s choice of accounting methods and estimates
