How Do You Value a Company? (3 Methods)

You pick a set of publicly traded companies similar in industry, size, growth, and margins to the target, then apply their trading multiples (most often EV/EBITDA, EV/Revenue, or P/E) to the target's metrics. It reflects how the public market values comparable businesses today. Pros: based on real, current market data and easy to defend. Cons: no two companies are truly identical, multiples swing with market sentiment, and it gives a 'where it trades' value, not a 'what someone would pay' value. See comparable companies analysis.

Same logic as comps, but the multiples come from actual M&A transactions for similar companies rather than current trading levels. Because acquirers pay a control premium and often expect synergies, precedent transaction multiples — and therefore the implied values — are usually higher than trading comps. Pros: reflects what a real buyer actually paid. Cons: data is stale (deals happened in different market conditions), premiums are distorted by deal-specific dynamics, and disclosure is often limited. See precedent transactions.

The only intrinsic method: you project the company's unlevered free cash flow over 5-10 years, discount it back to the present at the WACC, add a terminal value (via Gordon Growth or exit multiple), and sum to get enterprise value. Pros: independent of market noise, based on the company's own fundamentals, and lets you flex assumptions. Cons: extremely sensitive to inputs — small changes in WACC or terminal growth swing the value massively, so it's often called 'garbage in, garbage out.' See walk me through a DCF.

You never rely on one method — you triangulate. The standard output is a football field chart showing a value range from each method. Ranking by value (general rule): precedent transactions tend to be highest (control premium + synergies), DCF can be highest or lowest depending on assumptions, and trading comps are usually a floor. Be ready for the follow-up: 'Which gives the highest value and why?' and 'Which do you trust most?'

Mention these to show depth: LBO analysis (what a PE sponsor could pay to hit a target return — often sets a valuation floor), liquidation value (asset-based, for distressed names), sum-of-the-parts (for conglomerates valued segment by segment), and dividend discount model (for banks/financials where FCF is hard to define). Naming one or two unprompted signals you understand context-dependent valuation.