Business valuation methods can produce very different numbers for the same company: ask three different valuers to value the same business and you may get three different figures, not because any of them is wrong, but because valuation isn’t a single formula. It’s a set of methods, each with its own assumptions, and the skill lies in knowing which to use and how to weigh them.
Here’s what the three main approaches actually do, in plain terms.
Discounted cash flow (DCF)
The idea: A business is worth the cash it can generate in the future, adjusted for the fact that money today is worth more than money later, and for the risk that the projected cash might not materialise.
How it works: The valuer builds a forecast of the company’s free cash flow, usually 5 to 10 years out, then discounts each year’s cash flow back to today’s value using a discount rate that reflects the business’s risk profile. A terminal value is added to capture everything beyond the forecast period.
Where it’s strong: Businesses with a track record and reasonably predictable cash flow. It captures the value of future growth in a way that backward-looking methods can’t.
Where it’s weak: It’s highly sensitive to assumptions. Change the discount rate by one or two percentage points, or adjust the growth rate in the terminal value, and the output can shift dramatically. For early-stage or highly volatile businesses, this sensitivity makes DCF less reliable on its own.
Market comparables (multiples)
The idea: Similar businesses tend to trade, or sell, at similar multiples of revenue, EBITDA, or another relevant metric. Find the right comparables, apply the multiple to your own numbers, and you get a market-grounded estimate.
How it works: The valuer identifies a set of comparable companies, either publicly listed or from recent private transactions, calculates the multiple those companies traded or sold at, and applies an adjusted version of that multiple to the subject company’s financials.
Where it’s strong: It’s intuitive, relatively fast, and grounded in what buyers are actually paying in the real market rather than a theoretical model.
Where it’s weak: Finding genuinely comparable companies for a Singapore SME, especially in a niche sector, can be difficult. Public company multiples often need significant adjustment (a size discount, a marketability discount) before they’re applicable to a smaller private business, and getting that adjustment wrong skews the result.
Net asset value (NAV)
The idea: A business is worth what it owns, minus what it owes, generally restated to current market values rather than historical book values.
How it works: The valuer takes the balance sheet, adjusts asset values to reflect current market worth (property, equipment, inventory), and subtracts liabilities to arrive at a net figure.
Where it’s strong: Asset-heavy businesses, holding companies, or situations where the business has limited or unpredictable future earnings, making cash-flow-based methods less meaningful. It’s also commonly used as a sanity-check floor value alongside other methods.
Where it’s weak: It doesn’t capture goodwill, brand value, customer relationships, or future earnings potential, so it tends to understate the value of a genuinely profitable, growing business.
Why valuers use more than one method
A competent valuation report rarely relies on a single method in isolation. It’s far more common to see DCF and market comparables run side by side, with NAV used as a reference point, and the final number reflecting where these approaches converge, or a reasoned explanation of why one method was weighted more heavily than another for this specific business.
If a valuation report gives you a single number with no explanation of method, that’s worth questioning. Valuers practising in Singapore are commonly credentialed through professional bodies such as the Institute of Valuers and Appraisers, Singapore (IVAS), which sets standards for how these business valuation methods should be applied and disclosed.
What this means for you as a business owner
You don’t need to become a valuation expert, but understanding roughly which of these business valuation methods applies to your situation helps you have a more informed conversation with whoever you engage. A capital-light services business with strong recurring revenue is a natural DCF candidate. An asset-heavy manufacturing business might lean more on NAV. A business in a sector with active recent M&A activity might be well suited to a comparables approach.
Knowing which method, or combination of methods, fits your business also helps you sanity-check a valuer’s report rather than simply accepting the final figure at face value.
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