Every valuation uses at least two methods and triangulates between them. Here is when each method is most reliable.
DCF (Intrinsic Value)
Use when: you have reliable cash flow projections, the business has a stable model, and you want to understand fundamental value independent of market sentiment.
Strengths: forces explicit assumptions about growth and margins; shows the present value of future economics; useful for acquisitions and LBO analysis.
Weaknesses: garbage in, garbage out — small changes in discount rate or terminal growth produce large valuation swings; hard to use for pre-revenue or unprofitable companies.
Comparable Company Analysis (Comps)
Use when: there are good public comparables with similar growth profiles, you want a market-validated sanity check, or you're pitching a fundraise.
Common multiples: - ARR multiple: revenue × 4–15× (SaaS, depends on growth rate) - EBITDA multiple: 8–15× (profitable businesses) - Gross profit multiple: 5–10× (services/marketplace)
Strengths: reflects what buyers are actually paying right now; easy to communicate.
Weaknesses: multiplies can compress or expand with market conditions; "comparable" companies may not be truly comparable.
Best practice: triangulate
Use DCF as your intrinsic anchor, comps as your market reality check. If DCF says $50M and comps say $25M, either your assumptions are aggressive or the market is pricing a discount to fundamentals.
Use the DCF calculator to build your intrinsic value case.