Question

Explains the advantages and disadvantages of a comparable model, and net asset valuation model.

Answer 1

Comparables model:

Advantages: 1) Reference value (market ratios) are easily available 2) Helps valuation be in sync with other comparable companies of the same industry

Disadvantages: 1) Which market ratio to select in which case is debatable 2) Some cases, market values may be misleading (because of accounting treatment etc.)

Net asset valuation model:

Advantages: 1) Hard value of tangible assets is the basis 2) Very close to liquidation value in specific cases where liquidation is a possibility

Disadvantages: 1) Ignores non-tangible or goodwill or brand value 2) this model was quite useful in 1930s and 40s after great depression when companies where available at discount to net asset values. But nowadays this is a rarity and you may not find many companies trading at valuations that are close to net asset value