Last updated on June 30th, 2025 at 09:47 am
Understanding how much a company is worth can get tricky, especially if you’re trying to make decisions based on those numbers. Whether you’re buying, selling, investing, or simply analysing competitors, knowing the right business valuation methods makes a world of difference.
But, in all honesty, there isn’t a one-size-fits-all approach.
Different situations demand different ways of valuing a company, and in this blog, I’ll run you through the most commonly used ones. Some old-school, some modern, all crucial.
Before we jump in, if you’re someone looking to build serious skills around this topic, you might want to look into a good financial analysis course to deep-dive into practical finance tools and techniques, including all major valuation methods.
Why Valuation Matters
Valuation isn’t just about numbers on a spreadsheet. It’s about making better decisions:
- Should you invest in this business?
- Is that startup worth the hype?
- What’s your own company worth today?
The answer usually depends on which of the valuation methods you choose. Let’s go through the most popular business valuation methods people are using in 2025.
1. Market Capitalisation
This is the easiest and most well-known method, especially for publicly traded companies. All you do is:
Formula:
Share Price x Total Outstanding Shares = Market Cap
If a company has 10 million shares and each is worth ₹500, the market cap is ₹50 crores.
Pros:
- Super simple.
- Easy to track daily.
Cons:
- Doesn’t include debt or other liabilities.
- Can be volatile due to stock price changes.
2. Discounted Cash Flow (DCF) Analysis
This one gets a little technical but is incredibly reliable. The DCF method estimates the present value of expected future cash flows. Basically, how much money will this business bring in over the years?
Key Steps:
- Forecast future cash flows.
- Apply a discount rate (usually WACC).
- Add the values to get today’s worth.
Pros:
- Very detailed.
- Based on real projected performance.
Cons:
- Relies on accurate forecasting.
- Sensitive to changes in assumptions.
Watch: DCF Valuation Explained
3. Comparable Company Analysis (Comps)
Think of this as real estate price checking. If similar companies in your sector are trading at a certain multiple, your company should too.
Common Multiples:
- EV/EBITDA
- P/E Ratio
- EV/Sales
Comps Example
| Company | Revenue | EBITDA | EV | EV/EBITDA |
| A | ₹100 Cr | ₹30 Cr | ₹300 Cr | 10x |
| B | ₹80 Cr | ₹20 Cr | ₹180 Cr | 9x |
| Subject | ₹100 Cr | ₹25 Cr | ? | ? |
Pros:
- Real-world basis.
- Quick benchmarking.
Cons:
- Needs close comparables.
- Market sentiment can skew ratios.
4. Precedent Transactions Method
This is similar to Comps but based on actual past transactions. You check what companies like yours were recently bought or sold for.
Steps:
- Collect past M&A transactions.
- Adjust for time or market changes.
- Use those metrics to value the subject firm.
Useful for:
- M&A deals
- Startups
Precedent Deals
| Deal | Sector | EBITDA | Deal Value | EV/EBITDA |
| X | SaaS | ₹15 Cr | ₹200 Cr | 13x |
| Y | SaaS | ₹20 Cr | ₹240 Cr | 12x |
Pros:
- Based on real historical data.
- Reflects market willingness.
Cons:
- Old deals may be irrelevant.
- Not always enough data.
5. Asset-Based Valuation
Here, you add up all of the company’s assets and subtract liabilities. This works better for companies with tangible assets like manufacturing or real estate.
Formula:
Net Asset Value = Total Assets – Total Liabilities
Types:
- Book Value Method
- Liquidation Value Method
Pros:
- Grounded in actual numbers.
- Good for asset-heavy companies.
Cons:
- Doesn’t reflect future earning potential.
- Hard to value intangible assets.
Watch: Valuation I Analyzing Financial Statements
6. Earnings Multiplier
This method compares a company’s current earnings with its market value. It gives a sense of what investors are paying per rupee of earnings.
Formula:
P/E Ratio = Share Price / Earnings per Share
A company with a P/E of 20 means investors are paying ₹20 for every ₹1 of earnings.
Pros:
- Easy to calculate.
- Great for comparing across sectors.
Cons:
- Not suitable for loss-making firms.
- Can be misleading in cyclical industries.
How to Choose the Right Method
Here’s a quick cheat sheet:
- Public Company? Use Market Cap or Comps.
- High Growth Startup? Try DCF or Precedent Transactions.
- Asset Heavy? Go with Asset-Based Valuation.
- Selling the Business? Mix methods for a blended value.
Final Thoughts
Valuation is part art, part science. Whether you’re a founder or future fund manager, understanding multiple company valuation methods gives you the edge. There’s no perfect formula. What works for one company might not suit another.
Keep refining your knowledge, follow market trends, and don’t hesitate to mix methods if it makes sense.
Don’t blindly trust just one number on a sheet. If you’re serious about finance, picking up valuation techniques on your own is doable, but having expert-led training can fast-track everything.
The Postgraduate Financial Analysis Program by Imarticus covers valuation methods, real-world case studies, Excel modelling, and more. Worth checking if you want top jobs in finance or investment banking.
FAQs
- What is the most accurate valuation method?
That depends. DCF is very thorough, but it needs solid assumptions. Comps work well if good comparisons are available.
- Can startups use traditional valuation methods?
Mostly no. Startups often don’t have consistent earnings, so methods like DCF or Precedent Transactions work better.
- Is asset-based valuation outdated?
Not at all. It’s still used in industries like manufacturing, real estate, and distressed business sales.
- Why do companies use different valuation techniques?
Because every business is unique. Some rely on assets, others on earnings or market trends. Different methods give a fuller picture.
- Which method is best for mergers and acquisitions?
Precedent transactions and DCF are most commonly used in M&A deals.
- What’s one of the easiest valuation methods to learn?
Market cap is the simplest for public companies. But for in-depth skills, DCF and Comps are essential.
- Does one need a background in finance to learn valuation methods?
Not necessarily. With the right course or guide, anyone can get started.