Corporate valuation is encountered in different situations such as mergers and acquisitions, leveraged buyouts (LBO and MBO), IPOs, etc. There are two common valuation approaches, discounted cash flow (DCF) valuation. and the relative valuation method, also called multiple. Although they are both commonly used tools for effective investment decision making, they differ in how they estimate the value of an asset.a. Discounted Cash Flow (DCF) Valuation DCF valuation is based on the assumption that the value of an asset is equal to the present value of the expected cash flows from the asset. To perform a DCF valuation, analysts calculate the present value of expected future cash flows and discount it for the cost of risk incurred by the cash flows and the life of the asset. This valuation is based on two basic principles: Each asset has an intrinsic value that can be projected if cash flows, growth and risk are known. Markets are inefficient and assets are not valued perfectly, but they can self-correct when new information about the asset becomes available. The input data for the DCF evaluation is the discount rate. , cash flow and growth rate. The DCF valuation can be used to both value stocks and companies. When valuing stocks, analysts use the cost of stocks as the discount rate, cash flow to stocks (CF to stocks), and earnings growth of stocks. When valuing a company, analysts use the cost of capital as the discount rate, cash flow to the company (CF to Firm), and operating profit growth. In both cases, growth is used to calculate expected cash flows. Furthermore, the discount rate can be expressed in nominal or real terms.Advantage: By taking into account the intrinsic value of the asset, investors are aware of middle of paper......for the false judgment between overvalued and undervalued securities. Even if a security turns out to be overvalued relative to its relative valuation, it may still be undervalued relative to the market. This happens because relative pricing assumes that even if markets are inefficient, pricing errors can be identified and corrected more easily. However, this applies to markets as a whole and not to individual securities. Relative valuation requires fewer inputs than DCF valuation implies that for any other variable, the model makes implicit assumptions which, if they turn out to be false, the entire model is false. In conclusion, there is no better or worse valuation model. Both DCF valuation and relative valuation effectively serve their purposes. The choice between the two depends on valuation philosophy, time horizon and individual market beliefs..