There are lots of ways to value companies.

Finance tends to focus on two main ways.

The first of these is equity value.

This is the value of the shares of the company.

If we were asked how much the shareholders shares are worth, this is the answer we would give the equity value.

In banking, there is another common value that's often used enterprise value.

This is the value of the company's operations.

A company's operations produce the products of a company, so the operations might include the value of a company's factories and inventory. They definitely help produce the products.

So that gives us two different values, but there are lots of methods to arrive at both of those values.

If we were looking to buy a company and thus need to value that company, we might want to use all of those methods to check and double check that we are paying the right amounts of money.

One of those valuation methods is called relative valuation, but it can also be called multiple valuation or comparable valuation.

This is based on comparison to other companies.

Imagine if I was trying to value a company, this method would say, let's look at a similar company first and use that to help me value my company.

So it looks at the similar company and it tries to find a relationship between two things, the value of that similar company and something that drives the value of that similar company. A common relationship, a common two things is the value of the company and the profits of that company. One drives the other.

If we can find that relationship between value and profit in a similar company, maybe I could copy that relationship, steal it, and apply it to my company.

A second valuation method is absolute valuation.

This is based on the company's individual characteristics and does not look so much at other similar companies. Instead, it's more inward looking.

An example of absolute valuation is a DCF or discounted cash flow, which calculates the company's future cash flows and asks How much would someone be willing to pay now to get hold of those future cash flows?