What are the three major valuation methodologies?

What are the three major valuation methodologies?

• A. LBO, Sum of the Parts, Real options.
• B. Comparable Companies, Precedent Transactions, Discounted Cash Flow Analysis.
• C. Market Cap, EVA, NPV.
• D. None.

Answer: (B)

Valuing a company typically uses three main approaches that triangulate value from different angles: Comparable Companies Analysis, Precedent Transactions Analysis, and Discounted Cash Flow Analysis. Comparable analysis looks at how similar publicly traded firms are priced today, applying their market multiples (like EV/EBITDA or P/E) to the target’s metrics to estimate value. Precedent transactions analyze past acquisitions of comparable companies and use the multiples paid in those deals, which reflect actual buying prices and deal dynamics. Discounted cash flow builds intrinsic value by forecasting the company’s free cash flows and discounting them back to present value at an appropriate rate, usually the weighted average cost of capital. Together, these three provide market-based, transaction-based, and intrinsic-value perspectives, giving a balanced view of what a company is worth. The other options involve methods or metrics that aren’t the standard trio used for core valuation: for example, LBO modeling, Sum of the Parts, and Real options are more specialized techniques or financing structures, while Market Cap, EVA, and NPV are metrics or calculations rather than the primary valuation frameworks.

Valuing a company typically uses three main approaches that triangulate value from different angles: Comparable Companies Analysis, Precedent Transactions Analysis, and Discounted Cash Flow Analysis.

Comparable analysis looks at how similar publicly traded firms are priced today, applying their market multiples (like EV/EBITDA or P/E) to the target’s metrics to estimate value. Precedent transactions analyze past acquisitions of comparable companies and use the multiples paid in those deals, which reflect actual buying prices and deal dynamics. Discounted cash flow builds intrinsic value by forecasting the company’s free cash flows and discounting them back to present value at an appropriate rate, usually the weighted average cost of capital.

Together, these three provide market-based, transaction-based, and intrinsic-value perspectives, giving a balanced view of what a company is worth. The other options involve methods or metrics that aren’t the standard trio used for core valuation: for example, LBO modeling, Sum of the Parts, and Real options are more specialized techniques or financing structures, while Market Cap, EVA, and NPV are metrics or calculations rather than the primary valuation frameworks.