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.
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!)
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.
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.