Abstract
This chapter describes the four main groups that are composed of the most widely used company valuation methods: balance-sheet-based methods, income-statement-based methods, mixed methods, and cash-flow- discounting-based methods. The methods that are becoming increasingly popular are based on cash-flow discounting. These methods view the company as a cash-flow generator and therefore assessable as a financial asset. A company's value is different for different buyers and may also be different for the buyer and the seller. Balance-sheet-based methods determine the company's value by estimating the value of its assets. Income-statement-based methods seek to determine the company's value through the size of its earnings, sales, or other indicators. Cash-flow-discounting-based methods determine the company's value by estimating the cash flows it generates in the future and then discounting them at a discount rate matched to flows' risk. The chapter concludes with a discussion on some of the most common errors that occur in valuations.
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