THE ACCURACY OF RELATIVE VALUATION METHODS IN ASSESSING COAL PRODUCTION FIRMS’ VALUE IN INDONESIA

• Main Author: Mulya, Reynaldo
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/75453
• Institution: Institut Teknologi Bandung

The coal production industry is experiencing rapid development, attracting a growing number of investors seeking opportunities in this sector. The availability of numerous relative valuation methods has led to confusion among investors, as different methods yield significantly varied calculation results when compared to the market price. These deviations introduce considerable risks and result in valuation errors that investors must contend with when making investment decisions. To address this challenge, this research aims to assist investors in making informed decisions when investing in coal production companies within the IDXENERGY index. By utilizing the out-of-sample harmonic mean method, the study assesses the valuation errors associated with different methods. Additionally, theoretical foundations such as the efficient market hypothesis inform the investigation, guiding the determination of the most performing multiple. The findings of this research reveal crucial insights. Firstly, CP Large shown to have the most valuation accuracy compared to other categories while CP Small shows the other way around (CP = Coal Production Companies). Income-based multiples shown to have more valuation accuracy compared to non-income- based multiples. In determining the optimal combination of relative valuation calculations weighting that minimizes valuation errors, single multiple is more effective compared to combined multiples. Lastly, each coal production group has its own accurate single multiple, P/E for CP Large with errors of 5.6%, EV/Revenue for CP Medium with errors of 22.3%, and P/E for CP Small with errors of 25.7%