Valuation estimates what a company or asset is worth under a defined set of assumptions. Those assumptions cover growth, profitability, risk, financing, and market conditions, and they can change. The result is usually a range rather than one objectively correct number.
The main techniques fall into two broad categories. Intrinsic valuation estimates value from the company’s own expected cash flows, while relative valuation examines how the market values comparable companies or transactions. The labels, as you will quickly find, are simpler than the work underneath. Bankers often supplement both categories with analyses tailored to the situation, such as a leveraged buyout analysis or sum-of-the-parts valuation.