Following steps need to follow:
a)Choose a set of sample company which is similar to the target company
b)Determine Valuation Index which are generally Net Income, Dividend, Cash Flow, or Book Value of Asset etc.
c)Calculate valuation Ratio, which can be one of the following
- Stock Price / Earnings per share
- Market Value / Equity
- Market Value / Earnings before Interest and Tax
- Market Value / Sales
- d)Adjust the sample’s valuation ratio to the target company’s valuation ratio
e)Target company’s value = target company’s valuation Ratio * Valuation Index
