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Katherine Whitehorn

Investment Dictionary


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Valuation Methods

 

There are three main valuation methods used for business valuation or stock valuation


  1. Relative valuation is very easy to use and is the fastest method. That is why this method is so popular among finance experts and valuators. Despite the fact that this method looks the easiest one, mistakes of inexperienced valuators are very probable. 
  2. DCF valuation or also called a discounted cash flow valuation is the next popular to relative valuation. This method is especially useful in official reports and is irreplaceable among professional investors or investment bankers.  
  3. Replacement cost valuation is less used method, and most of the times it is used when first two cannot be used. Also this method is applied more by bureaucrats because this one is the most far-off from the real market value.

 

There are more valuation methods but these three methods are the main ones and all other methods are derivative and won’t be taken seriously. Valuation can look trustful only as long as it is generally accepted. Business valuation is sensitive task and requires the most professionalism. Sometimes it is needed to hire professional valuation consultants to do the best job. 

 

 






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