It is a pattern I have seen many times in valuation work.
DCF produces one value. Comparable-company multiples produce another. Sometimes precedent transactions provide a third.
The next step is often to assign weights — perhaps 50% to DCF and 50% to multiples, or 50% to DCF and 25% to each of two market approaches — and calculate a final value.
My question has always been simple:
Why those weights?
There can be a perfectly valid reason to give one method more weight. A company with several years of meaningful operating history and a credible business plan may support a robust DCF. In another case, the forecast may be highly uncertain while genuinely comparable market evidence is strong.
But if there is no clear analytical basis for the weights, weighting the methods does not necessarily make the valuation more objective. It simply introduces another assumption.
More importantly, when DCF and multiples produce materially different answers, the difference itself may be telling us something.
Perhaps the forecast is too optimistic or too conservative. Perhaps the selected companies are not genuinely comparable. Perhaps their margins, growth or market positions are structurally different. Or perhaps the market is pricing expectations that are not reflected in the business plan.
A weighted average can make that disagreement disappear without explaining it.
In practice, for businesses with sufficient operating history and a credible forecast, I generally prefer to use DCF as the primary analytical framework and multiples as a market sanity check, rather than mechanically averaging the two.
The point is not that one method is always superior.
Sometimes the most useful question in valuation isn't:
“Which method gives us the right number — or how should we combine them to arrive at a final value?”
It is:
“Why does this method give us a different number — and what is that difference telling us?”