Master Valuation Without the Mystery
Real techniques from analysts who've spent years figuring out what actually works when you're staring at financial statements at 2 AM.
Start With What Actually Matters
Most valuation courses throw formulas at you. But here's what I learned after three years of getting models wrong: you need to understand the story before the spreadsheet makes sense.
Cash Flow Over Everything
Earnings can be manipulated. Cash either exists or it doesn't. When you're analyzing a Taiwan-based tech manufacturer, look at operating cash flow trends across quarters—not just the annual numbers.
Industry Context Changes Everything
A 15% margin might be excellent for retail but concerning for software. Before you build any model, spend time understanding what normal looks like in that specific sector.
Scenario Planning Saves You
Your base case will be wrong. Build three scenarios—optimistic, realistic, pessimistic. Then focus most of your time on the pessimistic one because that's where the real risks hide.
Comparable Analysis Requires Judgment
You can't just pull five similar companies and average their multiples. Each comparable needs adjustment for size, growth rates, market position. This part takes the longest but matters most.
Three Methods You'll Use Constantly
These aren't theoretical exercises. They're the approaches you'll return to week after week when clients need answers.
Discounted Cash Flow
The foundation method. Complicated at first, but once you understand terminal value calculations, everything else gets easier.
- Project free cash flows for 5-10 years based on historical patterns
- Calculate weighted average cost of capital with current market rates
- Determine terminal value using perpetuity growth method
- Run sensitivity analysis on growth and discount rate assumptions
Comparable Company Analysis
Market-based approach that shows how similar businesses are valued right now. Faster than DCF but requires careful peer selection.
- Identify 6-8 truly comparable companies in same industry
- Calculate EV/EBITDA, P/E, and other relevant multiples
- Adjust for differences in size, growth, and profitability
- Apply median multiples to target company metrics
Precedent Transactions
Look at what buyers actually paid for similar companies. Includes control premiums that comparable analysis misses.
- Find transactions from past 2-3 years in relevant sector
- Extract deal multiples paid by acquirers
- Adjust for market conditions at time of transaction
- Consider strategic versus financial buyer differences
Linnea Thorvaldsen
Senior Valuation Analyst
What I Wish Someone Told Me Earlier
The first time I presented a valuation to a client, my model was perfect—formulas, scenarios, sensitivity tables. But I couldn't explain why the company was worth that number in plain language. That's when I realized technical skills are only half the job.
- Build your model in stages. Don't try to create everything at once. Start with historical analysis, then move to projections, then valuation. Each stage needs to make sense before the next one will.
- Keep a reference file of good comparable analyses. When you find companies that are genuinely similar, save those comps. You'll reference them for years when similar situations come up.
- Learn to spot accounting adjustments quickly. Non-recurring charges, stock compensation, pension adjustments—these need to be normalized before your model makes sense.
- Practice explaining your valuation to someone without finance background. If you can't make the story clear to your colleague who studied marketing, you don't understand it well enough yet.
- Focus on what could make you wrong. Clients don't need you to be precisely right. They need you to identify the major risks and opportunities they haven't considered.