- Discounted Cash Flow (DCF) Method:
- Project future cash flows
- Determine a discount rate
- Calculate the present value of projected cash flows
- Add the terminal value
- Comparable Company Analysis:
- Identify similar companies
- Calculate valuation multiples (e.g., P/E ratio, EV/EBITDA)
- Apply these multiples to the company being valued
- Precedent Transactions Method:
- Analyse recent sales of similar companies
- Calculate transaction multiples
- Apply these to the company being valued
- Asset-Based Valuation:
- Sum up the fair market value of all assets
- Subtract total liabilities
- Earnings Multiples:
- Use a multiple of earnings (e.g., 5x annual profit)
- Often used for small businesses
Analysts often use multiple approaches and consider various factors like growth potential, market conditions, and industry trends.