Here are the most common valuation mistakes to avoid:
Overrelying on a single method. No one approach tells the whole story. Use multiple methods, such as DCF, comparables, and precedent transactions, to triangulate value.
Garbage in, garbage out. Overly optimistic revenue projections or understated costs produce meaningless results. Ground your assumptions in data.
Ignoring the discount rate. Using an inappropriate WACC or failing to adjust for risk distorts present value significantly.
Neglecting market context. Valuations don’t exist in a vacuum. Sector trends, interest rates, and comparable transactions all matter.
Anchoring to price. Confusing what someone paid for an asset with what it’s actually worth is a fundamental error.
Forgetting terminal value sensitivity. In a DCF, terminal value often drives 60-80% of total value. Small assumption changes have outsized impact.