Valuation: Comps & Precedents
What are the main valuation methodologies?
Model answer
Three core approaches
- comparable companies (trading comps) - current multiples of similar public firms
- precedent transactions - multiples paid in past M&A deals
- discounted cash flow (DCF) - intrinsic value of projected cash flows. Others include LBO analysis (a floor for a financial buyer) and sum-of-the-parts. ⚠ Common wrong answer: "Asset-based, income-based, and market-based valuation." Why it fails: That is the accounting-textbook taxonomy, not the banker's toolkit — the interviewer wants trading comps, precedent transactions, and the DCF, because those distinctions (minority vs. control prices, market vs. intrinsic) are what the job actually turns on.
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More from Valuation: Comps & Precedents
- Why might trading comps and precedent transaction comps give different values?
- Why is EV/EBITDA often preferred over P/E for comparing companies?
- What are the three primary valuation methodologies a banker uses, and in one line each, what is each based on?
- Which of the standard valuation methodologies tend to produce the HIGHEST and the LOWEST values, and why?
- Walk me through how you perform a comparable companies analysis.
- Walk me through a precedent transactions analysis.
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What are the main valuation methodologies?
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