Valuing Companies - Anything besides DCF?

Sum of the parts

LBO

lick finger put it in the air

Some guy at CS was grilling me and insisted that those 3 weren't enough and that there were actually 6 methods of valuation. An asshole he was, but sum of the parts, LBO (souped up DCF, basically), and there is one more that I can't remember right now. Can anyone think of it?

the first three.

Sum of the Parts is really just applying a combination of DCF and comps to each business unit and adding them up. Hardly a novel valuation approach.

Sometimes if you're doing a fairness opinion (i.e. working for the government, rather than the companies) you may use more academic finance to get valuations, but even then they are just modifications of the existing techniques.

In the end...finger in the air.

the multiples based approach maybe...?

I don't trust its accuracy though...

real option approach

"The only valuation that really matters is how much someone willing to pay." - This couldn't have been said better

1) DCF 2) CompCo 3) CompAcq 4) LBO 5) Affordability 6) Back-It-In

Quick Question..

The 5 (or 6) methods of valuing a company listed so far either use comparables or projections to arrive at a value for the company. But what about the company's current Enterprise Value?

Isn't this what the company's "firm value" actually is right now? Can someone explain why the company's current EV is always put aside, and why bankers use all these other methods to arrive at another value?

When someone asks "What is this company worth right now?", why can't I just take the company's diluted shout * share price, add net debt, and say "Here it is!"?

I'm pretty sure I'm looking over something basic here, but not sure what it is..

because you're trying to find out what the compahny should be worth.

if you're going to look at the firm's actual ev, you might as well look at their actual sp. for example, bhp (ASX) is worth 27.50... there, calculation done.

try going into a pitch with that.

Also, doesn't really take into account things like future cashflows the way DCF does. It would be like buying something at cost because that's what the sum of its parts add up to. You also have to consider that value is added for you as the consumer when the thing is all assembled and delivered to you. For the same reason, companies can be worth more than their current EV might show.

Right, but shouldn't the public market investors already take this into account? I mean, it's not like projecting the firm's future earnings is anything impossible.. The research guys build out a model everytime they issue a buy/sell recommendation on the stock.

For example, for a while Amazon had negative earnings, and was trading up solely based on the fact that 2-3 years from then, it would go into the black. That took into account future cashflows (or at least revenues)

What information do bankers put into a valuation that would give them a different number from what an ER analyst would get? And once the ER analyst puts out his model, shouldn't the public investors (the institutional ones, not the mom and pop) recognize whether the stock is overvalued or undervalued, and have the stock price correct itself?

All Equity Research Analysts (and I guess a very savvy investor) have to go on is company guidance and asking questions during conference calls, their own hunches/ideas/research, etc. A bank mandated on a sellside, for example, has direct access to the company and management projections. Your assumptions should be very well backed up and scrubbed.

ER analysts are all over the place sometimes. And I hate to say it, but alot of times I see some questionable valuations for banks taht have some ancillary business attached to their coverage...

Oh, ok. So the reason a bank's valuation is different from the general public is because they have proprietary information directly from the company that would make their numbers more accurate.

But wouldn't this mean that the buyside advisor is as clueless as the ER analyst unless the target company's management show interest and gives them access? How do buyside advisors come up with good projections for hostile takeovers when management wouldn't be willing to share anything with the acquiring company's advisors?