What are the 3 major valuation methodologies?

What are the 3 major valuation methodologies?

• A. Comparable Companies; Precedent Transactions; Discounted Cash Flow Analysis.
• B. LBO Analysis; Sum of the Parts; Future Share Price Analysis.
• C. Replacement Value; Liquidation Valuation; M&A Premiums Analysis.
• D. EV/Revenue; EV/EBITDA; P/E

Answer: (A)

Three main ways to value a company are to compare it with similar public companies, to look at prices paid in past deals for similar targets, and to estimate value from the company’s own projected cash flows discounted to present value. First, the Comparable Companies approach values the target by applying the same kinds of multiples used for its peers (like EV/EBITDA, EV/Revenue, or P/E) to its own financials. This reflects how the market currently prices similar businesses and gives a quick, market-based benchmark. Second, Precedent Transactions look at historical deals for comparable companies to infer what buyers have actually paid, including control premiums and deal dynamics. This provides a market price range grounded in real transactions. Third, Discounted Cash Flow analysis estimates value from the company’s expected future cash flows, brought back to present value using a discount rate that reflects risk and capital costs. This captures the intrinsic value based on fundamentals rather than current market prices. Together, these three give a balanced view: market-based peers, market-based deal benchmarks, and intrinsic value from fundamentals. Other methods exist, but they’re either subsets of these approaches or apply to specific situations (for example, asset-based or liquidation methods in distressed scenarios, or financing-focused analyses like LBO modeling).

Three main ways to value a company are to compare it with similar public companies, to look at prices paid in past deals for similar targets, and to estimate value from the company’s own projected cash flows discounted to present value.

First, the Comparable Companies approach values the target by applying the same kinds of multiples used for its peers (like EV/EBITDA, EV/Revenue, or P/E) to its own financials. This reflects how the market currently prices similar businesses and gives a quick, market-based benchmark.

Second, Precedent Transactions look at historical deals for comparable companies to infer what buyers have actually paid, including control premiums and deal dynamics. This provides a market price range grounded in real transactions.

Third, Discounted Cash Flow analysis estimates value from the company’s expected future cash flows, brought back to present value using a discount rate that reflects risk and capital costs. This captures the intrinsic value based on fundamentals rather than current market prices.

Together, these three give a balanced view: market-based peers, market-based deal benchmarks, and intrinsic value from fundamentals. Other methods exist, but they’re either subsets of these approaches or apply to specific situations (for example, asset-based or liquidation methods in distressed scenarios, or financing-focused analyses like LBO modeling).