The basic concept behind relative valuation or multiples is that identical assets should be sold at identical prices (Koller et al., 2015). This method is considered easy to understand, apply and communicate. However, multiples are often applied incorrectly. According to Damadoran (2012) and Goedhart et al. (2005), the relative evaluation has significant shortcomings. First, market trading levels may depend on periods of irrational investor sentiment that will affect the company's valuation being too high or low relative to similar companies. Secondly, this method can be easily manipulated. Different assumptions in the choice of multiple parameters or peer group can lead to distinct conclusions. However, Fernández (2001) and Goedhart et al. (2005) agree that multiples provide useful insights into stress testing the DCF model and into understanding the dynamics of the industry and its players. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Fernández (2001) divides multiples into three categories. The first is based on the company's market capitalization and includes price-to-earnings (P/E), price-to-equity (P/BV), and price-to-sales (P/S) ratios. Although widely used, Goedhart et al. (2005) identify two main flaws in the use of P/E multiples: they are constantly influenced by the capital structure and they are influenced by non-operational elements, such as one-off events. The second category is based on enterprise value (EV). The most common include EV-to-EBITDA, EV-to-EBIT and EV-to-Revenues. Finally, P/E growth or EV/EBITDA growth multiples are included in the last category, alluding to growth. These ratios are then multiplied by the company's performance data to estimate its stock price. Furthermore, Goedhart et al. (2005) present four principles for appropriately valuing a company using multiples. First, the authors highlight the importance of choosing companies with similar expectations in terms of ROIC and growth. Second, they argue that the EV/EBITA ratio is superior to others because it is not affected by capital structure unless there are material changes in the cost of capital, thus providing “a more comparative comparison” between company values. (Koller et al., 2015). Third, they suggest adjusting this ratio for non-operational items such as excess cash, operating leases, employee stock options, and pensions. Finally, they recommend the use of forward-looking multiples based on “forecasts rather than historical profits.” Choosing the right reference group is crucial for a reasonable relative assessment. Affected comparable companies must have similar business models and operations. Furthermore, these companies must compete in the same markets, be exposed to the same macroeconomic environment, and have similar prospects for growth and return on capital (Foushee et al., 2012). In consonance with Fernández (2001), the flexibility to delay an Investment has value in itself and the real options approach tries to capture it while other methods such as net present value and internal rate of return fail to do so. Neglecting this flexibility causes profitable projects to be undervalued (Fernández, 2001 and Michaels and Leslie, 1997). Fernández (2001) classifies real options by classifying them into three groups: contractual options, growth/learning options and flexibility options. To evaluate real options, both the Binomial and Black-Scholes models can be used (Fernández, 2001). However, Damodaran (2012) notes that.