# If we are to going to determine the value of a firm, how do we go about doing that? Begin by defining the concept of present value and discounting.

If we are to going to determine the value of a firm, how do we go about doing that? Begin by defining the concept of present value and discounting.

answer:

Answer:

Determination of the value of a firm can be done in the following ways:

1) Discounted Cash Flow

A discounted cash flow refers to a valuation method that is used for the estimation of the attractiveness of an investment opportunity. The discounted cash flow method to determine firm value is almost solely-driven by the projected performance of the firm into the duration of long-term. It uses future free cash flow projections and afterwards discounts to arrive at a present value estimate, that is used for the evaluating the potential for investment

It derives the cash flow the company will produce into perpetuity, when applicable, and afterwards discounts those cash flows back into today’s dollars (it is also known as net present value (NPV)).

With various different estimated values, a weight is applied to each to conclude with the overall estimated value, and when the weighted valuation is derived, there may be some other discounting factors. Because the securities of privately-held businesses does not have a liquid and active market in which to trade, therefore a discount is mostly applied to the valuation to account, minority interest positions, and other factors.

2) Book Value

Book value is the most simplest, and mostly least accurate, of the valuation methods is book value. It’s main focus is on the balance sheet and the book value of assets minus any relevant liabilities. Though there are many flaws to this approach, however still commonly employed by valuation experts.

3) Publicly-Traded Comparables

The public stock markets makes an assessment of the valuation to every company’s shares being traded. It provides a basis for determining the value of the company, mainly at the time of comparison to companies similar to yours. It mostly looks at the last twelve months (commonly referred to as LTM) and next twelve months (NTM) of revenue and Earnings Before Interest, Taxes, Depreciation, and Amortization.

4) Transaction Comparables

In this approach by looking at the multiples of LTM and NTM revenue and EBITDA for recent transactions and applying those multiples to the business, can be arrived at the estimated value based on this method