Key Methods for Share Valuation in M&A and Investments
1. Discounted Cash Flow (DCF) Method The DCF method estimates the present value of future cash flows. It's widely used for valuation for mergers and acquisitions due to its focus on intrinsic value. Steps: Project Future Cash Flows: Forecast the company’s cash flows over a defined period. Calculate Terminal Value: Estimate the value beyond the forecast period. Determine Discount Rate: Often based on the Weighted Average Cost of Capital (WACC). Discount Cash Flows: Calculate the present value of future cash flows. Advantages: Provides a detailed, forward-looking valuation. Accounts for company-specific factors. Challenges: Highly sensitive to assumptions about growth rates and discount rates. Requires accurate financial projections. 2. Comparable Company Analysis (CCA) This method involves comparing the target company with similar companies in the same industry, using valuation multiples such as P/E (Price-to-Earnings) and EV/EBITDA (Enterprise Value-to-EBITDA). Steps: Identi...