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Valuation Approaches-PV of Cash flow Vs Relative Valuation

There are two types of valuation approaches -present value of cash flow approach and relative valuation approach. Irrespective of whatever approach one may use for valuation, can you find two variables that must be considered. Why?

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Analysts and investors are endlessly inventive when it comes to using relative valuation. Some compare multiples across companies, while others compare the multiple of a company to the multiples it used to trade in the past.

In cash flow valuation, the value of a firm is determined by its expected cash flows. Other things, remaining equal, higher cash flows, lower risk and higher growth should yield higher values. In relative valuation also, analysts go back to these cash flow models to extract multiples and while ...

Solution Summary

Explains in brief the two valuation approaches i.e. present value of cash flow approach and relative valuation approach and then discusses the two importnat variables which are to be considered irrespective of valuation approach. (Apprpx. 340 words)

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