Four Ways to Value a Business: DCF, Comps, EVA & APV

Ask three people what a business is worth and you may get three different numbers — not because someone is wrong, but because they're answering different questions. Serious valuation uses four methods, and the most useful output isn't a single figure. It's understanding where the methods agree, where they diverge, and why.

Why no single method is "right"

A business is worth what its future cash flows are worth, what a buyer will pay for comparable businesses, and whether it earns more than its cost of capital. Those are genuinely different questions. When a discounted-cash-flow value sits far above the market price, that gap is information — either the market is missing something, or your assumptions are too optimistic. Reconciling it is the actual analysis.

Method 1 — Discounted Cash Flow (DCF)

DCF builds value from the inside out. Project the free cash flow the business will generate, discount each year to today at a rate reflecting its risk (the WACC), and add a terminal value for the years beyond the forecast. The result is intrinsic value — grounded in the business's own economics rather than market sentiment. Its strength is that grounding; its weakness is sensitivity, since small changes in the discount rate or growth assumption swing the answer widely.

Method 2 — Market Comparable Analysis

Comparables read value off the market. Find genuinely comparable businesses, compute their valuation multiples (EV/EBITDA is standard), and apply a like-for-like multiple to your subject's earnings. The market does the pricing; you translate it. The discipline is in choosing real comparables and comparing on the same basis — for example, if one peer leases its real estate and another owns it, you must compare on an after-rent basis or the lease penalty stays hidden.

Method 3 — Economic Value Added (EVA)

Profit alone doesn't mean value was created. EVA asks a stricter question: did the business earn more than the cost of the capital tied up in it? If return on invested capital exceeds the weighted-average cost of capital, value is created; if not — even with positive net income — value is being destroyed. This catches value destruction that a healthy-looking income statement hides.

Method 4 — Adjusted Present Value (APV)

APV values the business as if it were all-equity financed, then adds the value of financing effects — most commonly the debt tax shield — separately. It's the method of choice when capital structure is complex or changing, because it keeps operating value and financing value from getting tangled together.

Triangulation — the answer is the range, and the reason

Run all four, lay the results side by side, and weight them by the situation. A stable, cash-generative business leans on DCF and EVA. An active M&A market with good comparables weights comps. A leveraged or lease-heavy structure needs APV and after-rent comps. The mark of serious valuation work is not a single confident number, but a defensible range with a clear view of which method the situation should weight most.