Resources
Understanding valuation methods in the right context
Valuation methods are not interchangeable formula packages. They rest on different theoretical foundations and serve different valuation functions depending on the assignment.
Purpose of this page
This page helps you understand which methods are suitable in which context, where their limits lie, and why different methods do not automatically lead to the same economic statement.
Key principles first
- Value is not automatically the same as price.
- Method choice follows the valuation purpose and valuation function.
- The most theoretically well-founded method is not necessarily the one most often cited in practice.
- Uncertainty should be made visible instead of being reduced to one seemingly objective point estimate.
Methods in business valuation
In business valuation, it is especially important to distinguish between gross and equity approaches and between decision-oriented and objectified perspectives.
Functional business valuation
Particularly suitable where the individual decision value of the valuation subject is central.
Especially strong theoretically, because it incorporates withdrawal preferences, taxes, financing opportunities, and relevant alternatives.
The modelling is more demanding and requires a precise representation of the individual decision situation.
Capitalised earnings method
Suitable where future economic surpluses are central and a simplified but theoretically connected valuation logic is appropriate.
Closely related to functional valuation theory and highly relevant in many business valuation assignments.
Its economic meaning can differ materially depending on whether a subjective, objectified, or typified variant is used.
DCF methods
Useful as structured cash-flow-based valuation methods and often relevant as argumentation or comparison values.
Transparent modelling of cash flows, time value, and sensitivities.
The resulting value does not automatically coincide with the decision value of a concrete valuation subject, because capital-market-theoretical assumptions are typically embedded in the model.
Methods in real estate valuation
In real estate valuation, it is particularly important to distinguish between market-oriented methods under ImmoWertV and more decision-oriented methods used for investment purposes.
Comparison approach
Especially suitable where sufficiently reliable and truly comparable market evidence exists.
Strongly market-oriented when comparability is well established.
Comparability is often constrained by location, condition, use profile, and property-specific factors.
Income approach
Typically relevant for income-producing real estate and standardized market-oriented assignments.
Strong connection between earnings expectation and value logic.
Depending on the variant, one must distinguish carefully between a market-oriented value and an individual investment-oriented value.
Cost approach
Especially relevant where comparison or income data is limited or where the asset side is more prominent.
Structured derivation from land value and building substance.
Without proper market adjustment, the cost value is not automatically identical with the relevant market value or decision value.
How method selection works in practice
- 1) Clarify valuation purpose and valuation function: decision, mediation, argumentation, market or standard context.
- 2) Define intended use and the audience of the result.
- 3) Assess data quality, assumptions, and uncertainty critically.
- 4) Select a primary method and plausibilize it with complementary perspectives.
- 5) Interpret the result in light of the underlying theory and assumptions.
Possible misconceptions
"All methods automatically produce the same value if the data are the same."
No. Methods rest on different theoretical assumptions and can therefore represent different value concepts.
"Market-oriented or standardized values are automatically decisive for every individual decision."
Not necessarily. In individual investment or negotiation contexts, a more decision-oriented value may be economically more relevant.
"Multiples are enough for a complete business valuation."
Multiples can be useful for plausibility checks, but usually do not replace a full derivation of the economic benefit of future surpluses.
Questions for orientation on valuation methods
Why do different methods produce different results?
Because they rely on different valuation functions, assumptions, and theoretical reference points. Differences are therefore not automatically errors.
Which methods are especially well-founded in business valuation?
Functional business valuation and the original/subjective capitalised earnings method are especially important theoretically because they can reflect the individual decision framework of the valuation subject.
Why compare several methods?
Because comparison supports plausibility checks and reveals how strongly the result depends on model assumptions, market reference, and valuation function.
Are ImmoWertV procedures always optimal for investment decisions?
Not necessarily. ImmoWertV primarily provides a standardized market-oriented framework. For individual investment decisions, other valuation logics may be more appropriate.
Detailed method topics
For selected questions, dedicated pages provide deeper explanations of theoretical foundations, assumptions, and limits in practical use.
Do you want to clarify the right method for your case?
Share a short outline of your context, intended use, and timing. You will receive a realistic recommendation on which valuation logic and scope are sensible for your assignment.
No black box: method choice, assumptions, and result logic are presented transparently and interpreted economically.