What type of valuation is a DCF considered to be compared to Public Comps and Precedent Transactions?

A Discounted Cash Flow (DCF) analysis is classified as an intrinsic valuation method because it focuses on the fundamental value of an asset based on its projected future cash flows rather than comparing it to the market values of similar companies or transactions. In a DCF, analysts estimate the free cash flows of a company and then discount these back to their present value using an appropriate discount rate, which typically reflects the risk of the investment and the company’s cost of capital.

Intrinsic valuation is fundamentally different from relative valuation methods, like Public Comparables and Precedent Transactions, which assess a company's worth based on how similar companies are priced in the market, using multiples such as EV/EBITDA or P/E ratios. Because DCF relies on cash flows and discounting rather than comparables, it delves into the underlying value driven by performance expectations rather than current market sentiment or pricing benchmarks. This makes a DCF a more detailed and comprehensive appraisal of a company's value, focusing on its unique financial characteristics and future growth potential.