Some valuation methods include DCF, Precedent Transactions, and Comparable Company Analysis.
DCF mainly focuses on forecasting the free cashflows that are availible to the claimants of the firm after cashflow has been reinvested into the firm or used for operating actvities. These cashflows are then discounted back to today's value based on a discount rate.
Precendent Transactions and Comparable Company Analysis each looks at similar companies and benchmarking some key ratios or multiples. For example, EV / EBITDA is a common multiple used. We could simply find the industry median or mean, and apply that to our target company.
These methods are easier said than done. For a retail investor, it would be quite challenging to apply such valuation methods because proper in-depth research and understanding is required, before any valuation can take place.
Some valuation methods include DCF, Precedent Transactions, and Comparable Company Analysis.
DCF mainly focuses on forecasting the free cashflows that are availible to the claimants of the firm after cashflow has been reinvested into the firm or used for operating actvities. These cashflows are then discounted back to today's value based on a discount rate.
Precendent Transactions and Comparable Company Analysis each looks at similar companies and benchmarking some key ratios or multiples. For example, EV / EBITDA is a common multiple used. We could simply find the industry median or mean, and apply that to our target company.
These methods are easier said than done. For a retail investor, it would be quite challenging to apply such valuation methods because proper in-depth research and understanding is required, before any valuation can take place.