Business valuation using multiple methodologies: DCF, comparable companies, precedent transactions, and asset-based approaches. USE THIS SKILL when the user asks about company valuation, enterprise value, equity value, WACC, terminal value, valuation multiples, football‑field chart, valuation range, valuation bridge, control premium, minority discount, fair market value, intrinsic value, or "what is this business worth." Also trigger when asked to value a division, business unit, or target company for M&A purposes.
Assess the company before selecting methods:
| Factor | Assessment | Impact on Methodology | |---|---|---| | Profitability | Profitable / Pre-profit / Distressed | Pre-profit: weight revenue multiples; Distressed: weight asset-based | | Growth stage | Early / Growth / Mature / Decline | Early: weight DCF with scenario analysis; Mature: weight comps | | Asset intensity | Asset-light / Asset-heavy | Asset-heavy: include asset-based approach | | Comparable availability | Strong peer set / Weak peer set | Weak: increase DCF weight, reduce comps weight | | Transaction context | Control acquisition / Minority investment | Control: include precedent transactions + control premium |
Calculate the weighted average cost of capital:
| Component | Formula | Source | |---|---|---| | Cost of equity (Ke) | Risk-free rate + Beta x Equity risk premium + Size premium + Company-specific premium | CAPM model | | Risk-free rate | 10-year or 20-year government bond yield | Treasury data | | Equity risk premium | Historical market return minus risk-free rate (typically 5-7%) | Damodaran / Duff & Phelps | | Beta | Unlevered peer beta, re-levered for target capital structure | Regression or peer-derived | | Size premium | Small-cap premium if applicable (1-5%) | Duff & Phelps / Kroll | | Cost of debt (Kd) | Yield on comparable-rated debt x (1 - tax rate) | Market or synthetic rating | | WACC | Ke x (E / (D+E)) + Kd x (D / (D+E)) | Target capital structure weights |
State every assumption explicitly. Document risk-free rate date, ERP source, beta peers, and size premium category.
Project unlevered free cash flow (UFCF) for the explicit forecast period (typically 5-10 years):
UFCF = EBIT x (1 - Tax Rate) + D&A - CapEx - Change in Net Working Capital
Use the financial-modeling skill for detailed three-statement model construction when building projections from scratch.
Perpetuity Growth Method:
TV = UFCFn+1 / (WACC - g)
Where g = long-term sustainable growth rate (typically 2-3%, must not exceed nominal GDP growth).
Exit Multiple Method:
TV = EBITDAn x Exit Multiple
Where the exit multiple is derived from current trading multiples of mature peers.
Sanity check: Both methods should produce terminal values within 20% of each other. If not, re-examine assumptions. Terminal value typically represents 60-80% of total enterprise value for growth companies.
| Item | Value | Notes | |---|---|---| | PV of projected FCFs | $___M | Sum of discounted UFCFs | | PV of terminal value | $___M | Discounted TV | | Enterprise value (DCF) | $___M | Sum of above | | Terminal value as % of EV | ___% | Flag if >85% |
Produce a sensitivity table on WACC (rows) x Terminal growth rate (columns) with at least 5x5 grid, centered on the base case.
Select 6-12 comparable public companies based on:
Document why each peer was included or excluded.
| Peer | EV/Revenue | EV/EBITDA | EV/EBIT | P/E | EV/FCF | |---|---|---|---|---|---| | Peer 1 | | | | | | | Peer 2 | | | | | | | ... | | | | | | | Mean | | | | | | | Median | | | | | | | 25th percentile | | | | | | | 75th percentile | | | | | |
Apply the most relevant multiples to the subject company's metrics. Use LTM and NTM metrics where available.
| Multiple Applied | Subject Metric | Multiple Range (25th-75th) | Implied EV Range | |---|---|---|---| | EV/Revenue | $___M revenue | ___x - ___x | $___M - $___M | | EV/EBITDA | $___M EBITDA | ___x - ___x | $___M - $___M |
Identify 5-10 comparable M&A transactions from the last 3-5 years. Prioritize:
| Transaction | Date | Target | Acquirer | EV ($M) | EV/Revenue | EV/EBITDA | |---|---|---|---|---|---|---| | Deal 1 | | | | | | | | Deal 2 | | | | | | | | ... | | | | | | | | Median | | | | | | |
Note: Precedent transaction multiples inherently include a control premium paid by acquirers.
Use when the company is asset-heavy, in distress, or as a floor valuation.
| Asset Category | Book Value | Fair Market Value Adjustment | FMV | |---|---|---|---| | Cash and equivalents | | 100% of book | | | Accounts receivable | | 80-95% of book (net of doubtful) | | | Inventory | | 50-90% of book (depends on type) | | | PP&E | | Appraisal-based or 40-80% of book | | | Intangibles (identifiable) | | Separate IP valuation if material | | | Real estate | | Appraisal value | | | Total adjusted assets | | | | | Less: Total liabilities | | At face value + contingent liabilities | | | Net asset value | | | |
Regardless of methodology, bridge from EV to equity value:
| Item | Value | Notes | |---|---|---| | Enterprise value | $___M | From selected methodology | | Less: Total debt | ($___M) | All interest-bearing obligations | | Less: Minority interests | ($___M) | If consolidated | | Less: Preferred equity | ($___M) | At liquidation preference | | Less: Unfunded pension | ($___M) | If applicable | | Less: Contingent liabilities | ($___M) | Litigation, earnouts owed | | Plus: Cash and equivalents | $___M | Unrestricted cash | | Plus: Non-operating assets | $___M | Excess real estate, investments | | Equity value | $___M | | | Diluted shares outstanding | M | Treasury stock method for options/warrants | | Equity value per share | $ | |
| Adjustment | Typical Range | When to Apply | |---|---|---| | Control premium | 20-40% over trading price | Valuing a controlling interest using public comps (which reflect minority prices) | | Minority discount | 15-30% from control value | Valuing a minority stake from a control-level valuation | | Marketability discount (DLOM) | 15-35% | Valuing illiquid/private shares with no public market |
Apply adjustments only once and document the basis. Never double-count (e.g., precedent transactions already include control premiums).
Produce a text-based range chart showing the valuation range from each methodology:
Valuation Range Summary ($M)
Low Mid High
DCF |=====[=========]=========|
$XXX $XXX $XXX
Comparable Cos. |======[=======]====|
$XXX $XXX $XXX
Precedent Txns |====[========]============|
$XXX $XXX $XXX
Asset-Based |==|
$XX $XX
Selected Range |====[====]====|
$XXX $XXX $XXX
State the concluded valuation range and point estimate:
## Valuation Analysis: [Company Name]
**Date**: [Date] | **Purpose**: [Purpose] | **Standard of Value**: [Standard]
### Executive Summary
[Company] is valued at an enterprise value of $[X]M to $[Y]M, with a midpoint
of $[Z]M, based on a weighted analysis of [methods used]. The equity value
range is $[A]M to $[B]M ($[C] to $[D] per share on [N]M diluted shares).
### WACC Derivation
| Component | Value | Source |
|---|---|---|
| Risk-free rate | X.X% | [source and date] |
| Equity risk premium | X.X% | [source] |
| Beta (re-levered) | X.XX | [peer set] |
| Size premium | X.X% | [category] |
| Cost of equity | X.X% | CAPM |
| Pre-tax cost of debt | X.X% | [basis] |
| Tax rate | X.X% | [statutory / effective] |
| Debt / total capital | X.X% | [target structure] |
| **WACC** | **X.X%** | |
### DCF Valuation
[Projected UFCF table, terminal value calculation, sensitivity table]
### Comparable Companies
[Peer table with multiples, implied valuation ranges]
### Precedent Transactions
[Transaction table with multiples, implied valuation ranges]
### Asset-Based Valuation
[Adjusted net asset value table — include only if applicable]
### Valuation Bridge
| Item | Value |
|---|---|
| Enterprise value (midpoint) | $___M |
| Less: Net debt | ($___M) |
| Less: Other EV adjustments | ($___M) |
| **Equity value** | **$___M** |
| Per share (diluted) | $___ |
### Football Field
[Text-based range chart showing all methods]
### Methodology Weighting
| Method | Weight | Rationale |
|---|---|---|
| DCF | X% | [why] |
| Comparable companies | X% | [why] |
| Precedent transactions | X% | [why] |
| Asset-based | X% | [why] |
### Key Sensitivities
[WACC x Growth sensitivity table]
[Multiple sensitivity table]
### Risks and Caveats
- [Key risk 1 and its impact on valuation]
- [Key risk 2 and its impact on valuation]
financial-modeling skill used or referenced for underlying projection model construction.Category:business