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I mean the price the company would be purchased for.

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  • $\begingroup$ Discounted cash flow method, discounted dividend method, peer multiples (if a peer has a P/E of 10 and your earnings are 5, then your price should be about 5*10=50). $\endgroup$ Commented Feb 6 at 7:00
  • $\begingroup$ @RichardHardy A logical follow up question is: How does one estimate the future cashflow and interest rates, without which the fisrt method is sorely lacking. Also, how did one get P/E without knowing P, the logic of the second method seems to be circular. $\endgroup$
    – Giskard
    Commented Feb 6 at 10:19
  • $\begingroup$ @Giskard, each method takes a textbook chapter to cover in detail; my comment just gives the keywords. The known P/E is that of a peer, not the original company, thus the argument is not circular. $\endgroup$ Commented Feb 6 at 12:44

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I was paid to do this for a while in my career. The main fundamental analysis methods we used were:

  1. Discounted cash flow method: forecast free cash flows for the infinite future and obtain their present value by discounting them using an appropriate rate. (For a publicly traded company, the discount rate could be obtained e.g. using the CAPM estimated on historical stock returns data. For a private company, you could find a similar publicly traded company and use its discount rate.)
  2. Discounted dividend method: forecast dividends for the infinite future and obtain their present value by discounting them using an appropriate rate.
  3. Peer multiples: e.g. if a peer company has a Price/Earnings ratio of 10 and your company's earnings are 5, then your company's price should be about 5*10=50. Other multiples such as Price/Sales, Price/EBIT, Price/EBITDA may also be used.

Each method would take a textbook chapter to cover in detail, so I will not expand on them here. A brief inftroduction is available e.g. on Investopedia here.

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