Valuation Methods
Models that turn forecasts and peer prices into an estimated value. 19 topics.
Discounted Cash Flow (DCF)
The technique of valuing a stream of future cash by discounting each cash flow back to today at a rate that reflects time and risk.
Discounted Cash Flow Valuation
The use of discounted cash flow to estimate what a business, or its equity, is worth today.
Weighted Average Cost of Capital (WACC)
The blended required return of equity and debt, weighted by their share of the capital structure.
Cost of Equity
The return shareholders require for holding the equity, given its risk.
Cost of Debt
The effective interest rate the company pays, or would pay, on its borrowings.
Terminal Value
The value, at the end of the explicit forecast, of all cash flows after that date.
Perpetual Growth Rate
The constant rate at which cash flows are assumed to grow after the explicit forecast, forever.
Exit Multiple
A valuation multiple applied to a metric at the end of the forecast to estimate terminal value.
Dividend Discount Model (DDM)
A valuation that discounts expected dividends to the present.
Gordon Growth Model
The constant-growth form of the dividend discount model.
Relative Valuation
Valuing a company by the multiples at which similar assets trade.
Comparable Company Analysis (CCA)
A relative valuation built from the trading multiples of a chosen set of listed peers.
Precedent Transaction Analysis
A relative valuation built from the multiples paid in completed acquisitions of similar companies.
Sum of the Parts Valuation (SOTP)
Valuing each business separately and adding the values, then subtracting claims that sit above the equity.
Asset-Based Valuation
Valuing the company from its assets minus its liabilities, adjusted from book value toward a current economic value.
Earnings Power Value
The value of current, sustainable earnings with no credit for growth, discounted as a perpetuity.
Intrinsic Valuation
The process of estimating intrinsic value from the business's own cash flows or assets, rather than from peer multiples.
Net Present Value (NPV)
The present value of a project's cash inflows minus the present value of its cash outflows, including the initial investment.
Internal Rate of Return (IRR)
The discount rate that makes the net present value of a set of cash flows equal to zero.