Valuation estimates what a company or asset is worth under a defined set of assumptions. Because assumptions about growth, profitability, risk, financing, and market conditions can change, valuation usually produces 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. Relative valuation estimates value by examining how the market values comparable companies or transactions. Bankers often supplement these methods with analyses tailored to the situation, such as a leveraged buyout analysis or sum-of-the-parts valuation.