• The Daily Technical
  • Posts
  • The Daily Technical #39: What are the most common valuation methods used in finance?

The Daily Technical #39: What are the most common valuation methods used in finance?

Good morning. Welcome to the 39th edition of The Daily Technical. You’re here for one reason so let’s dive in.

November 04, 2024

Good morning. Welcome to the 38th edition of The Daily Technical. You’re here for one reason so let’s dive in.

First time reading? Sign up here.

ANNOUNCEMENT
HirePrep’s Beta Goes Live Today!

Keep an eye on your inbox for an email from me (Mike) with more details on how to get access.

OVERVIEW OF YESTERDAY’S QUESTION
Among the DCF, comparable companies analysis, and transaction comps, which approach yields the highest valuation?

Transaction comps analysis often yields the highest valuation because it looks at valuations for companies that have been acquired, which factor in control premiums.

Control premiums can often be quite significant and as high as 25% to 50% above market prices.

Thus, the multiples derived from this analysis and the resulting valuation are usually higher than a straight trading comps valuation or a standalone DCF valuation.

Common Mistakes

  1. Ignoring control premiums. Always include a clear explanation of why they matter in your answer.

  2. Failing to compare transaction comps with other valuation methods. Make sure to touch on how transaction comps differ, especially in terms of potential valuation outcomes.

  3. Answers can often be too vague or complex. Stick to clear, concise explanations, avoiding jargon or overly detailed technicalities.

Key Takeaways / TLDR

  • Transaction comps typically yield higher valuations due to control premiums

  • Control premiums can be substantial, driving valuations 25% to 50% higher than market prices

  • Always contrast with other methods like trading comps and DCF to highlight differences

TODAY’S QUESTION
What are the most common valuation methods used in finance?

Type your answer here. Within 90 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
Before You Go: Are you in a finance club?

We’re partnering with clubs to provide their members with free access to our beta. Here’s a link to our partnership page.

If your club is interested simply fill out the form on our partnership page (it’s towards the bottom under “How to Get Started”) or reply to this email!

See you tomorrow,

The HirePrep Team