How bankers value a company
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
7 min read · updated July 2, 2026
Ask a banker "what's this company worth?" and the honest answer is a question back: worth to whom? There is no single number. A company is worth different amounts to a public-market investor, to a strategic acquirer, and to a private equity fund, because each one is buying a different thing. So bankers don't hand a client one value. They run a handful of methods, each answering a different question, and present a range.
That's the whole game. Learn the four tools, learn what question each one answers, and learn why they disagree.
The four tools
Every valuation you'll build in banking is some combination of these.
1. Trading comparables
Trading comps ask: what are investors paying today for similar public companies? You pick a peer set (same industry, roughly the same size, similar growth and margins), pull each peer's enterprise value relative to a metric like EBITDA, and apply that multiple to your company. It's a market snapshot. Fast, current, and grounded in real prices people are actually paying.
The catch: the market can be wrong about the whole sector at once, and you're borrowing its mood.
2. Precedent transactions
Same idea, but instead of today's stock prices you use the prices paid in past M&A deals for similar companies. What did an actual acquirer pay to own the whole thing? See precedent transactions for the full method.
3. The DCF
The DCF ignores the market entirely and asks: what is this business worth based on the cash it will generate itself? You project unlevered free cash flow, discount it back, and add a terminal value. It's the one intrinsic method in the kit. We break it down in the DCF explained.
4. The LBO floor
An LBO analysis flips the question around: what could a private equity sponsor pay and still hit its return target (usually a 20%-ish IRR)? A sponsor doesn't care about "fair value." It cares about the most it can pay and still make its money back with a profit. That maximum sits below what a strategic buyer would pay, because the sponsor has no operating synergies to justify a richer price. So the LBO tends to set the floor of the range. The LBO and paper LBO walks through the mechanics.
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Frequently asked
- What methods do bankers use to value a company?
- Bankers run four tools: trading comparables for today's market read, precedent transactions for what an acquirer paid with a control premium, a DCF for intrinsic value based on the company's own cash flows, and an LBO to set the floor. Each answers a different question, so they present a range, not one number.
- Why do precedent transactions usually give a higher value than trading comps?
- Because of the control premium. Trading comps come from passive, minority prices where you cannot change strategy or capture synergies. An acquirer buying the whole company gets control and pays up for it, typically 20% to 40% over the undisturbed price. Precedents bake that premium in; trading comps do not.
- What is a football field in valuation?
- A football field is a bar chart where each valuation method is a horizontal bar spanning its low-to-high range. You lay the methods side by side rather than averaging them into one number. Where the bars overlap, you have a defensible range; where they diverge, you have a conversation about why.
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