What are the main methods of valuing a business?

Three main valuation methods of Arizona business valuation that are used by industry practitioners when valuing a company as a going concern:

1. CF analysis,
2. Comparable company analysis,
3. Precedent transactions

In addition, various valuation methods are used in investment banking, equity research, private equity, corporate development, mergers & acquisitions (M&A), leveraged buyouts (LBOs), and finance.

Comparative Analysis (“Comps”) is the first method:

Comparable company analysis assesses a company’s value by comparing its current value to that of other, similar businesses using ratios such as P/E, EV/EBITDA, or other trading multiples. The most common method of valuation is to multiply EBITDA by multiples.

Transactions based on precedents:

As another method of relative valuation, precedent transactions analysis involves comparing a company’s value to those of businesses sold or acquired recently in the same industry. These transaction values include the takeover premium as part of the price for which they were acquired.

DCF Analysis is the third method:

Analyzing discounted cash flow (DCF) is an intrinsic value approach in which analysts forecast a business’s future free cash flow and discounts them back to today’s reasonable cost of capital.

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