When accounting for competitive advantage, which practice is suggested?

When accounting for competitive advantage, which practice is suggested?

• A. Look at the 75th percentile or higher for the multiples rather than the Medians.
• B. Always use the median multiple.
• C. Use the 90th percentile always.
• D. Use the 10th percentile.

Answer: (A)

When measuring value with a competitive edge, you want to reflect the premium that stronger positions tend to command in the market. That's why looking at the upper end of peer multiples—around the 75th percentile or higher—best represents that advantage. It captures what the market is willing to pay for durability and defensibility, without getting pulled by the typical or extreme outliers. Using only the median would dilute the premium by averaging with less advantaged peers, and using the 90th percentile or the 10th percentile either goes too far or too far in the opposite direction, respectively, potentially mispricing the opportunity. So, the suggested practice is to reference the 75th percentile or higher for multiples to account for competitive advantage.

When measuring value with a competitive edge, you want to reflect the premium that stronger positions tend to command in the market. That's why looking at the upper end of peer multiples—around the 75th percentile or higher—best represents that advantage. It captures what the market is willing to pay for durability and defensibility, without getting pulled by the typical or extreme outliers. Using only the median would dilute the premium by averaging with less advantaged peers, and using the 90th percentile or the 10th percentile either goes too far or too far in the opposite direction, respectively, potentially mispricing the opportunity. So, the suggested practice is to reference the 75th percentile or higher for multiples to account for competitive advantage.