DCF vs. comparable multiples: when to use each method

Choosing the right valuation method depends both on the purpose of the report (an M&A deal, litigation, an inheritance) and on the availability and quality of the company’s data.

Discounted cash flow (DCF)

Better captures the value of businesses with reliable multi-year projections and stable capital structures. Its main limitation is sensitivity to growth assumptions and the chosen discount rate.

Comparable multiples

Faster to apply and useful as a market cross-check, but depends on finding genuinely comparable transactions or listed companies — not always straightforward in highly specialised sectors or family businesses.

When to combine both

In M&A processes we recommend presenting a valuation range using both methods: DCF as the fundamental valuation and multiples as a market cross-check, documenting the differences if the resulting range is wide.