What are the three major valuation methodologies used in financial analysis?

The correct answer identifies the three major valuation methodologies widely recognized in financial analysis: Comparable Companies, Precedent Transactions, and Discounted Cash Flow (DCF). These methods are essential tools for valuing a business or an investment.

Comparable Companies analysis involves evaluating the value of a company based on the market valuations of similar firms, often focusing on multiples such as Price-to-Earnings (P/E) or Enterprise Value to EBITDA. This method uses publicly traded companies as benchmarks to assess relative valuation.

Precedent Transactions analysis looks at previous transactions involving comparable companies to determine an appropriate valuation multiple or range for a business. This approach reflects how much purchasers have historically paid for similar businesses, considering industry trends and market conditions.

Discounted Cash Flow analysis is a fundamental valuation technique that calculates the present value of a company's expected future cash flows, providing a detailed view of its intrinsic value. This method involves projecting future cash flows and discounting them back to the present using an appropriate discount rate, often based on the company's cost of capital.

Each of these methodologies has its use cases and reflects different aspects of valuation, making them cornerstone techniques in financial analysis and investment banking.