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Fair value methodology: DCF, exit multiple, analyst target, Graham

The four valuation methods behind a multi-method fair value, and why combining them into a range beats any single point estimate.

Why use more than one method

Every valuation method rests on assumptions that can be wrong. A discounted cash flow is sensitive to the discount rate; a multiple-based value depends on the multiple you pick. Running several independent methods and looking at where they agree is more robust than betting everything on one model's single output.

The four methods

Discounted cash flow (DCF) projects future earnings and discounts them to today. Exit multiple applies a normalized forward P/E to forward EPS and discounts one year. Analyst target uses the published Wall Street 12-month price-target consensus. The Graham number is a conservative floor from earnings and book value. Each can be skipped gracefully when its inputs are missing.

From four numbers to a range

The methods produce a spread of fair values. A tight cluster signals agreement and a more reliable estimate; a wide spread is itself a warning that the company is hard to value. The headline intrinsic value anchors on the forward DCF, and the gap to the current price becomes the margin of safety.

Build the cash-flow model behind a fair value in the Valuation course lesson on discounted cash flow.

Read the precise inputs and defaults in the fair value methodology, or browse the cheapest names by margin of safety on the margin-of-safety board.