<p>I was paid to do this for a while in my career. The main fundamental analysis methods we used were:</p>
<ol>
<li>Discounted cash flow method: forecast free cash flows for the infinite future and obtain their present value by discounting them using an appropriate rate. (For a publicly traded company, the discount rate could be obtained e.g. using the CAPM estimated on historical stock returns data. For a private company, you could find a similar publicly traded company and use its discount rate.)</li>
<li>Discounted dividend method: forecast dividends for the infinite future and obtain their present value by discounting them using an appropriate rate.</li>
<li>Peer multiples: e.g. if a peer company has a Price/Earnings ratio of 10 and your company's earnings are 5, then your company's price should be about 5*10=50. Other multiples such as Price/Sales, Price/EBIT, Price/EBITDA may also be used.</li>
</ol>
<p>Each method would take a textbook chapter to cover in detail, so I will not expand on them here. A brief inftroduction is available e.g. on Investopedia <a href="https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp" rel="nofollow noreferrer">here</a>.</p>

CC BY-SA 4.0
2024-02-06T12:51:11.690Z
2024-02-06T12:51:11.690Z
Richard Hardy
<p>I mean the price the company would be purchased for.</p>

CC BY-SA 4.0
2024-02-06T07:00:51.580Z
Discounted cash flow method, discounted dividend method, peer multiples (if a peer has a P/E of 10 and your earnings are 5, then your price should be about 5*10=50).
Richard Hardy
CC BY-SA 4.0
2024-02-06T10:19:04.283Z
@RichardHardy A logical follow up question is: How does one estimate the future cashflow and interest rates, without which the fisrt method is sorely lacking. Also, how did one get P/E without knowing P, the logic of the second method seems to be circular.
Giskard
CC BY-SA 4.0
2024-02-06T12:44:32.127Z
@Giskard, each method takes a textbook chapter to cover in detail; my comment just gives the keywords. The known P/E is that of a peer, not the original company, thus the argument is not circular.
Richard Hardy
<value>
What is a standard practice for assessing the price of a company?
Julius Hamilton
# What is a standard practice for assessing the price of a company?

(Asked by: username_0 on 2024-02-06)

I mean the price the company would be purchased for.

**Tags:** value
> **Comments:**
> **username_1**: Discounted cash flow method, discounted dividend method, peer multiples (if a peer has a P/E of 10 and your earnings are 5, then your price should be about 5*10=50).  
> **username_2**: @RichardHardy A logical follow up question is: How does one estimate the future cashflow and interest rates, without which the fisrt method is sorely lacking. Also, how did one get P/E without knowing P, the logic of the second method seems to be circular.  
> **username_1**: @Giskard, each method takes a textbook chapter to cover in detail; my comment just gives the keywords. The known P/E is that of a peer, not the original company, thus the argument is not circular.  

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## 1 answers

### Answer by username_1 on 2024-02-06. Score: 2

I was paid to do this for a while in my career. The main fundamental analysis methods we used were:

1. Discounted cash flow method: forecast free cash flows for the infinite future and obtain their present value by discounting them using an appropriate rate. (For a publicly traded company, the discount rate could be obtained e.g. using the CAPM estimated on historical stock returns data. For a private company, you could find a similar publicly traded company and use its discount rate.)
2. Discounted dividend method: forecast dividends for the infinite future and obtain their present value by discounting them using an appropriate rate.
3. Peer multiples: e.g. if a peer company has a Price/Earnings ratio of 10 and your company's earnings are 5, then your company's price should be about 5\*10=50. Other multiples such as Price/Sales, Price/EBIT, Price/EBITDA may also be used.

Each method would take a textbook chapter to cover in detail, so I will not expand on them here. A brief inftroduction is available e.g. on Investopedia [here](https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-methods.asp).


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