How do you value a company in investment banking?

The three core methods are Discounted Cash Flow (DCF) which calculates intrinsic value from projected future cash flows, Trading Comparables (comps) which benchmark against how similar public companies are currently valued, and Precedent Transactions which reference what acquirers have actually paid for comparable companies. Each provides a different perspective and together they produce a valuation range.

Valuation produces a range because each methodology captures different information. DCF reflects fundamental cash flow assumptions, comps reflect current market sentiment, and precedent transactions include control premiums. These methods rarely converge on one number. The spread between them reveals where the market disagrees with fundamentals, where control premiums exist, and where your assumptions might be wrong.

Trading comps value a company based on how the market currently prices similar public companies. Precedent transactions value it based on prices paid in actual M&A deals, reflecting what acquirers paid for control. Precedent multiples are typically higher because they include a control premium, usually 20-40% above the trading price.

DCF carries more weight for stable, cash-generating businesses with predictable cash flows where you can build reliable projections. It is the anchor to fundamental value. Comps are preferred when the company has close public peers and you need a market-based sanity check. For pre-revenue startups with no cash flows to project, DCF is impractical and only comps or precedent transactions apply.