1. Determine a valuation range based on the values of comparable public companies
2. Determine a valuation range based on the values revealed by transactions involving comparable companies
3. Perform a discounted cash flow analysis
Using the three legs of the valuation stool, experts come up with a range that is adjusted or framed to meet the requirements for the valuation. For example, an internal valuation for compensation purposes is different from one for buying or selling a business from one used for estate planning purposes.
One of the things we do that is different from the typical approach, is to use our strategic planning and advising tools as an additional check on the projections provided by management or otherwise constructed through standard techniques. Our method allows for additional insights into sustainability of cash flows and implications of growth rates embodied in the projections.
An area that benefits from this approach is the analysis of intangible assets and their value. The focus on free cash flow is a convenient (and ultimately necessary) yardstick against which to measure intangibles.