I was trying to apply what i have learned but when i looked at some company financial models i see that these valuatoins are based on enterprise value multiples. Do the pros really use what we learn in the curriculum or is it a whole different world out there?
I came to realize the DDM is just a theoratical concept that had i used it would have been a good joke! can someone elaborate on the practicality of these concepts?
Thanks.
FCF DCF Models are pretty commonly used by the sell side. Also, market based multiples models are even more frequently used. I thought level 2 and 3 were the most practical. Although 90% of it, I’ll never use as a financial advisor.
For buy side, DCF models can be used as well. I think it’s better to use them to evaluate possible ranges instead of finding a single intrinsic value point - so you can see where prices may go depending on different assumptions.
Multiples are pretty decent, but multiples may be comparing “wrong” prices to peers’ “wrong” prices (i.e. industry in a bubble).
I think almost every valuation idea on the curriculum can be useful for some situations, but you’ll probably twist and combine them for your own purposes, or even ignore whatever you think it doesn’t apply well to your job or the sector you’re analyzing.