Ask three analysts to value the same company and you'll often get three different numbers — even when everyone is using standard, textbook-correct methodology. A discounted cash flow (DCF) model, a trading comparables analysis, and a precedent transactions analysis can each produce a defensible enterprise value for the exact same business, and those values can sit 15-25% apart from one another. Understanding why they diverge — not just how to calculate each one — is one of the most reliable ways to stand out in a valuation interview.

Three Methods, Three Different Questions

The reason the numbers disagree is that each method is technically answering a slightly different question, even though they're all labeled "valuation":

  • DCF asks: what is this business worth today, based on the cash it will generate over its life, discounted back at an appropriate rate? It is control-neutral and forward-looking, but highly sensitive to the discount rate (WACC) and terminal growth assumptions you choose.
  • Trading comparables ask: what is the public market currently paying for similar, publicly listed businesses? This is a market-based, minority-stake view — it reflects how investors price a small, liquid slice of a company, not what a buyer would pay to own the whole thing.
  • Precedent transactions ask: what have acquirers actually paid to buy control of similar companies in the past? Because a buyer gets to redirect strategy, extract synergies, and consolidate cash flows, this method typically produces the highest values — it embeds a control premium that the other two methods don't.

What the Gap Actually Tells You

A wide spread between methods isn't a sign that something is broken — it's information. If precedent transactions sit meaningfully above trading comps, that gap is a reasonable proxy for the control premium buyers are paying in that sector. If DCF sits well above both market-based methods, that's worth investigating: it could mean the market is undervaluing the business, or it could mean your terminal growth rate or WACC assumptions are too aggressive relative to what the market believes.

In practice, analysts rarely pick a single method and call it done. Instead, they triangulate — weighting each method based on how relevant it is to the specific situation (a full-control acquisition leans more on precedent transactions and DCF; a minority investment leans more on trading comps) — and present the result as a range, often visualized as a "football field" chart, rather than a single point estimate.

Worked Example

The case When Valuation Methods Conflict walks through exactly this scenario step by step: three methods produce three different enterprise values, and you calculate both the spread between them and a weighted, triangulated value that reconciles the disagreement into a single defensible number.

Two related cases worth working through afterward: Conglomerate Discount, which looks at what happens when a company's market value diverges from its sum-of-the-parts valuation, and Synergy Valuation, which covers the piece of a precedent-transaction premium that comes specifically from expected synergies rather than control alone.

Why Interviewers Ask About This

This topic shows up constantly in valuation, M&A, and private equity interviews because it tests something calculators can't: judgment. Anyone can plug numbers into a DCF formula. Far fewer candidates can explain, in plain language, why three correct methods produce three different answers and how to turn that disagreement into a coherent recommendation.