Rank the 4 valuation methodologies from highest to lowest expected valuation
Answer
This is a pseudo-trick question, I would lead this by saying “well, it’s variable”. In general though, Precedent Transactions will be higher than Comparable Companies given the “Control Premium” of an acquisition compared to where a stock trades. The DCF can go either way and honestly, unless you’re working with a super scaled, profitable company they’re very easy to manipulate up or down. Normally, LBOs are the lowest though.
Why this matters to bankers
Valuation uses synthesis of all four valuation methods. In order to calculate and communicate a valuation, you have to understand the strengths and weaknesses of each valuation method.