The aim of valuation is to determine what a firm is worth. Value is determined based on historical and future financial parameters. Determination of firm value is a highly subjective exercise that calls for judgment. It changes and varies when business drivers and factors (both internal and external) change as well as when the environmental conditions like we’ve seen in Brooklyn, change. Since value estimation is subjective, it often serves as a basis for discussions. Moreover, there are many aspects of a business that is hard to quantify such as consumer behavior.
Companies can be valued from two perspectives: from looking at the inside of the firms -internal- or from the expectations of the market -external-. The internal methods estimate the value of all the future potential cash flows generated by the company. Therefore it relies on methods based on the concept of discounted cash flows (DCF).
With the external methods companies are valued through benchmarking competitors. These methods capture the market view of these companies, through which the value of a firm can be determined. Methods relying on external views are called multiple valuation methods because they involve the use of multiples but it takes some higher business education to get it all as there are a number of methods to estimate what a company should be worth.