1: Discounted Cash Flow (DCF) Valuation Method
The Discounted Cash Flow (DCF) valuation method is a commonly used technique to evaluate privately held companies. This method involves estimating the future cash flows generated by the company and discounting them to a present value using an acceptable rate of return. The discount rate is typically calculated based on the company’s weighted average cost of capital. The resulting value represents the intrinsic value of the company, or the value the company should have on the market.
2: Comparable Transactions Method
The Comparable Transactions method is a valuation method that involves comparing the valuation multiples of a company with those of similar transactions that have already occurred in the market. This method is based on the assumption that comparable companies should have similar valuation multiples. The commonly used valuation multiples are the Enterprise Value/EBITDA ratio, the Price/Earnings ratio, and the Enterprise Value/Sales ratio.
3: Adjusted Net Asset Value (NAV) Method
The Adjusted Net Asset Value (NAV) method is a method that evaluates the company by subtracting the value of its liabilities from the value of its assets. The value of its assets is adjusted to reflect their fair market value rather than their book value. This method is particularly useful for companies that own significant assets, such as real estate or expensive equipment.
4: Market Comparable Valuation Method
The Market Comparable Valuation method is a valuation method that involves comparing the company to similar publicly traded companies. This method is based on the assumption that comparable companies should have similar valuation multiples. The commonly used valuation multiples are the Enterprise Value/EBITDA ratio, the Price/Earnings ratio, and the Enterprise Value/Sales ratio.
5: Economic Value Added (EVA) Method
The Economic Value Added (EVA) method is a method that measures the economic performance of a company by taking into account the cost of its capital and the cost of its invested capital. This method evaluates the company based on its ability to create economic value for its shareholders. It is based on the assumption that the company should generate a sufficient return to cover the cost of its invested capital.