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Chapter 10

Summary of valuation methods –

when should each be used?

7.1 Circumstances when each valuation method is useful

Asset based P/E method
methods DVM and DCF

 Most appropriate  Suitable when  Both methods are
when valuing valuing a minority based on forecasts
capital intensive shareholding of the future, and
businesses with (because the often use proxy
plenty of tangible dividends information
assets (not service represent the (difficult to identify
businesses). investor’s forecast in practice).

 Also, in times of income).  If forecasts are
uncertainty, asset  For a majority accurate, these
based methods are stake, methods value the
favoured because it is more relevant business based on
they avoid the to consider overall future prospects,
need to forecast company cash so include
future earnings or flows or asset goodwill/
cash flows. values). intangible assets.
 For service
businesses, these
methods are
generally preferred
to asset based
methods.

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