What valuation methods to use for different companies?

caifanman

How do we determine the fair value for a company? Sometimes, P/E might not be suitable for certain industries, such as cyclical ones who make losses.

Taken from other blogs and research done, here is a simple summary of valuation methods for companies with different business model and industries.

Firm	Valuation Method
Heavily geared companies	Use EV/ EBITDA
Companies with negative cash conversion cycle	Use FCF yield
Property companies	Use NAV or RNAV
Asset-heavy companies	Use P/B
Firms with highly variable earnings	Use P/S

Of course, this is just a simplified model. Do note to always assess a business qualitatively before checking it's fair value. After that, we look whether the company is priced at a discount to fair value to ensure a margin of safety.

These methods are not entirely mine, some are taken from other blogs and comments (link: http://singaporeanstocksinvestor.blogspot.sg/2013/09/tea-with-solace-valuation-per-and-value_12.html)