Valuation using multiples is a popular and frequently used valuation method. We address if valuation using multiples is based on sound corporate finance principles in this article. While valuation using multiples is a popular and frequently used valuation method, it is also misused and incorrectly applied frequently! We address the misuse or incorrect application of valuation using multiples in another article and only address the technique’s underlying corporate finance principles here.
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Why is the DCF valuation method the most used method in valuation?
There are three methods that are used in valuation: DCF, multiples and, options-based method. Each one has its pros and costs. However, the DCF method is the most used in valuation in the classroom. In this article, we address the question “Why is the DCF valuation method the most used method in valuation?”
(Note: we acknowledge that there is a debate on the most used valuation technique in practice vs. in the classroom. The multiples method maybe more frequently applied in practice as it is far simpler!)
What types of companies are good candidates for running a DCF valuation?
All kinds of businesses can be valued using the DCF valuation. However, not all companies are ideally suited for a DCF valuation. Some companies are ideally suited for DCF valuation. While some other companies are better valued using other valuation techniques such as multiples-based valuation or options-based valuation. In this article, we discuss which types of companies are ideally suited for valuation using the DCV valuation method.
How do you determine the length of the forecast period in your DCF valuation model?
This post covers the primary factors that determine the length of your forecast in a DCF valuation model. We discuss four factors you should consider when determining how many years you forecast your cash flows in detail in this article.
Building a VC or PE Cashflow Distribution Waterfall
An MBA student electing a private equity or venture capital course will encounter building an investment cash flow waterfall for the private equity or venture capital investors. Our finance tutors can assist you understand investment returns and the investment distribution waterfall structure. We outline the key building blocks and steps to build a private equity or venture capital investment cash flow distribution waterfall.
Valuing Options using Binomial Trees, Replicating Portfolios and Risk Neutral Approaches
The Black-Scholes options valuation method is the best way to value options but learning to value options using the replicating portfolio approach, risk-neutral approach and the binomial tree approach help students get the intuition behind option valuation.
Two-Stage or Three-Stage or Multi-Stage DCF Models
How many years do we forecast DCF valuation cash flows? Do they grow in a specific pattern? How long do we mean when we refer to the ‘future’? How many years does the company live? the fact that a company can live on forever presents a problem. In a two-stage model, the second stage is the entire period after the first stage.
Components of a DCF Valuation Model
There are many features you can add to your model, if you have the time and need. Here is a list of features or sections you can add to your DCF valuation model if you need to.
Capital Budgeting Homework Help & Tutoring
Graduate Tutor’s Finance Homework help group can tutor you understand capital budgeting and the applications of capital budgeting in detail.
Tutoring for Financial Management: Theory & Practice by Eugene F. Brigham and Michael C. Ehrhardt
We provide corporate finance tutoring for the topics covered in the corporate finance text book titled ‘Financial Management: Theory & Practice’ by Brigham and Ehrhardt.