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Question 1

Advantages and Disadvantages of DCF models?

Answer 1

Advantages:
Based on fundamental present value concepts,
well-grounded in finance theory,
widely accepted.
Disadvantages:
Inputs must be estimated,
value estimates are sensitive to input changes.

Question 2

Advantages and Disadvantages of comparable valuation using price multiples?

Answer 2

Advantages:
Predictive of stock returns (some multiples),
widely used - readily available,
usable in time-series and cross-sectional comparisons, EV/EBITDA useful for capital structure differences and negative earnings.
Disadvantages:
Lagging,
not always comparable across firms,
affected by economic conditions (cyclicals),
potential conflicts with fundamental methods,
accounting differences affect comparability,
negative denominators create meaningless ratios.

Question 3

Advantages and Disadvantages of price multiple valuations based on fundamentals?

Answer 3

Advantages:
Theoretically sound,
correspond to accepted metrics.
Disadvantages:
Sensitive to inputs (especially k-g).

Question 4

Advantages and Disadvantages of asset-based models

Answer 4

Advantages:
Provide floor values,
reliable for tangible/marketable assets or liquidations, increasingly useful with fair value reporting.
Disadvantages:
Market values difficult to obtain,
often different from book values,
inaccurate with high intangibles,
difficult during hyperinflation.