Definition
Absolute valuation methods like DCF determine intrinsic value based on the company's own cash flows, growth, and risk profile without reference to how peers are priced. It provides an independent value estimate but requires many assumptions.
Formula
Primary method: DCF = Σ(FCF / (1+r)^t) + Terminal Value
Example
A DCF model projects the company's cash flows for 10 years and terminal value. The sum, $45 per share, is the absolute value regardless of whether peers trade at $30 or $60.
FAQ
What is Absolute Valuation?
Valuing a company based solely on its fundamentals without peer comparison.
How do you calculate Absolute Valuation?
A common formula for Absolute Valuation is: Primary method: DCF = Σ(FCF / (1+r)^t) + Terminal Value
Why is Absolute Valuation important?
Absolute Valuation helps investors evaluate valuation and make more informed decisions.