valuation-model

To value a company, apply absolute methods like DCF, DDM, or SOTP alongside relative benchmarks such as PE, PB, and EV/EBITDA. This framework helps quantify intrinsic value and triangulate a target price by cross-checking assumptions.

Use SOTP for intrinsic value calculation when evaluating a diversified conglomerate with distinct business units. DCF is better for unified high-growth entities, while SOTP breaks down separate assets to provide a more accurate aggregate valuation.

Detect valuation traps by cross-validating relative multiples like EV/EBITDA and PE against absolute DCF results. Implement sensitivity analysis and check margin of error guardrails to ensure data quality and identify misleading low multiples.

To run a DCF sensitivity analysis, you need explicit financial inputs including projected cash flows, discount rates, and terminal growth assumptions. The framework requires clear margins of error and scenario analysis to generate a reliable target price.

Absolute valuation works for high-growth tech companies by projecting forward cash flows in a DCF model. You should cross-check the DCF output with relative valuation multiples to account for market sentiment and ensure robust decision-making.