Share Valuation Methods with a Worked Example

Article summary

The value of a share can be estimated from future cash flows, prices paid for comparable businesses, or the value of assets after liabilities. Each method asks a different question and depends on different evidence. An estimate is not a guaranteed market price. This guide compares the methods using a fictional company and checked arithmetic; it is a learning exercise, not a recommendation about any real security.

Three share valuation approaches and the evidence each needs
Approach	Main question	Inputs to check	Common weakness
Discounted cash flow (DCF)	What are forecast future cash flows worth today?	Cash-flow forecasts, discount rate, terminal assumptions, debt, cash and share count	Small changes in long-term assumptions may change the result substantially
Comparable multiples	What do reasonably comparable businesses imply?	Comparable companies, consistent earnings measure, enterprise value, debt, cash and share count	A quoted peer may differ in growth, risk, accounting or capital structure
Asset-based value	What is the supported value of assets less liabilities?	Asset values, obligations, ownership claims and measurement dates	Book amounts may not capture intangible assets, future earnings or realisable value

CFA Institute describes present-value, multiplier and asset-based approaches as broad equity valuation families. The choice depends on the business and on the availability and quality of inputs. An analyst may use more than one approach as a cross-check, but should explain why the methods disagree rather than averaging numbers without reasoning.

Assume Meridian Components, an invented company, has forecast EBITDA of INR 12 crore. An analyst selects an illustrative enterprise-value-to-EBITDA multiple of 8 after comparing relevant companies. Enterprise value is 12 x 8 = INR 96 crore. If the company has INR 20 crore of debt and INR 4 crore of excess cash, a simplified equity bridge gives 96 - 20 + 4 = INR 80 crore. With 2 crore shares outstanding, the illustrative value is INR 40 per share. The crore units cancel in the final division. This is an arithmetic example; the 8x multiple and all other inputs are invented, not evidence of a real market price.

Checked fictional enterprise-to-equity bridge for Meridian Components
Step	Calculation	Result
Enterprise value	INR 12 crore EBITDA x 8	INR 96 crore
Equity value	INR 96 crore - INR 20 crore debt + INR 4 crore excess cash	INR 80 crore
Value per share	INR 80 crore / 2 crore shares	INR 40 per share

How the asset and DCF approaches differ

Suppose the same fictional company's supported asset value is INR 120 crore and its liabilities are INR 40 crore. A simple asset-based equity value is INR 80 crore, or INR 40 per share across 2 crore shares. That matches the multiple example by coincidence. It does not prove either method is correct: the asset measurements, contingent obligations and intangible value need review. A DCF instead forecasts cash flows, discounts them and bridges from enterprise to equity value. The separate worked DCF guide shows each calculation and how sensitive the result is to its assumptions.

Checks before presenting a valuation

State the valuation date, currency, reporting basis and whether each figure is historical, forecast or assumed.
Use comparable definitions: an enterprise multiple must be applied to a compatible operating measure and bridged to equity consistently.
Reconcile debt, excess cash, minority interests and diluted share count to the chosen methodology.
Test a range of assumptions; record the factor that moves the result most.
Explain why the method fits the company and what evidence could change the conclusion.

Which share valuation method is best?

There is no universal best method. DCF is sensitive to forecast assumptions, multiples depend on comparability, and asset-based methods depend on the relevance and measurement of assets and liabilities. Explain the business context and input quality before choosing.

Are share valuation and DCF the same thing?

No. DCF is one valuation approach. A share value can also be estimated using comparable multiples or asset-based approaches, with a suitable equity bridge and share count.

Work through the full fictional DCF calculation

See how a research note explains assumptions and risks

Explore the equity research analyst role

Review the financial modelling and valuation module

Read CFA Institute's equity valuation concepts

All Meridian Components figures are fictional. This page teaches method selection and review; it does not provide investment advice, a real issuer valuation or a promise of a particular role after training.

Share ValuationEquity ValuationDCFComparable Multiples

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Which share valuation method should you use?

Fictional multiple-based share valuation example

How the asset and DCF approaches differ

Checks before presenting a valuation

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