Equity Valuation Methods and Inferences

If all the methods of equity valuation yield varying results,

(1) how must I come to a conclusion of what value an equity security holds?

(2) and on what basis would I have to prefer one valuation method over another?

This isn’t an exact science.

It depends on the purpose of the valuation. Estate tax, acquisition, sale, investment, life insurance, liquidation, bankruptcy. There are many reasons and many opposing goals.

  1. There is no “true” specific equity value. Different valuation methods will give you a range of valuation results. The “true” value may the lay somewhere within this range.

  2. This depends on the purpose of valuation: Are you valuing an equity to buy just a share? Are you valuing a company with regards to M&A, and if so as a buyer or a seller? Depending on the purpose of the valuation you may apply different methods with different assumptions and different results. Regards, Oscar