Chapter 24

Valuing the firm

What is a firm worth? Answering this question will allow you to determine if it is undervalued or overvalued compared to its peers. Unfortunately, there is no single model for analysing what a firm is worth. Here, we describe four different models and we explain the pros and cons of each one.

When to use it

  • To decide the right price when making an acquisition.
  • To defend your own company against an acquisition.
  • As an investor, to decide when to buy or sell shares in a firm.


Managers and investors have needed to value firms for as long as there have been firms to buy or stocks to invest in. Early attempts at valuation focused on simple analysis of cash flows and profitability. As the notion of ‘time-value ...

Get 25 Need-to-Know MBA Models now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.