The Intellectual Capital Multiple: a new tool for Relative Valuation of a firm - theoretical presentation and empirical application to Italian companies

This paper proposes a new multiple, based on intellectual capital, asa new tool for relative valuation of a firm. The intellectual capital multiple(ICM), also disaggregated in three multiples, based on the intellectual capitalcomponents (human, structural and relational capital), can be added to thetraditional financial-based multiples (e.g., price/earnings, EV/EBITDA,EV/sales, etc.) to improve the techniques of valuation based on the so-calledcomparables. An empirical analysis on a sample of firms listed in the ItalianStock Exchange has been carried out to validate the new method, by comparingthe intellectual capital-based multiples with the traditional financial-basedenterprise multiples. Findings show that, especially in certain sectors mainlycharacterised by a high use of intellectual capital resources (software andtelecommunications), ICMs can be considered as valid and reliable. The ICMscan lead researchers and practitioners towards discovering a new ‘intangible’valuation tool to be placed alongside ‘tangible’ valuation methods.