FUNDAMENTAL ANOMALIES CONNECTED WITH THE VALUE OF MARKET MULTIPLES AND FIRM SIZE

Abstract

The subject of the study were market multiples' anomalies. Analyses were focused upon food companies listed on the Warsaw Stock Exchange. The differences in rates of return between portfolios formed from companies with low market multiples and with high ones, were discussed. Not only classic market multiples, like price to earnings and price to book ratio, were considered, but also market multiples based on sales and cash flow were used. In addition, the risk and the size effect was analysed. All companies were divided into two groups: "small" and "big" firms, based on the market value of their share capital. The aim of the article was to explore possible connections between market multiples, firm size and expectations of future rates of return. Our results suggest that investments in stocks of bigger companies are safer and more profitable.