Valuation isn’t a one-size-fits-all approach—it evolves with a company’s life cycle and the purpose behind the assessment. Choosing the right method requires understanding why the valuation is needed and where the business stands in its growth journey.
In this guide, we’ll break down the six key life stages of a company and how each impacts valuation techniques, from startups relying on scorecard methods to mature businesses best suited for discounted cash flow (DCF) analysis.
How to Select the Right Valuation Method?
Valuation is not one-size-fits-all.
The right method depends on two things:
1️⃣ The company’s stage in its life cycle
2️⃣ The purpose of the valuation
That’s why I always ask my clients first: “Why do you need the valuation?” Once the purpose is clear, the right method becomes obvious.
🚀 Start with the Company’s Life Stage
A company’s value changes with its maturity. There are six typical life stages:
- Startup
- Young growth
- High growth
- Mature growth
- Mature stable
- Decline
📌 Before jumping into valuation, you need to assess where the company stands on this curve. Each stage affects:
- What drives value (revenue, profit, cash flow)
- Which methods are most reliable
- Which ratios and metrics should be applied
💼 Example: A Mature Growth Company
Let’s say the business is in its mature growth phase. That means:
✔️ The company has predictable earnings
✔️ Growth is strong but stabilizing
✔️ Free cash flow is meaningful
✔️ Financial statements are historically consistent
In this case, here’s what works best:
✅ Primary Valuation Method: → Discounted Cash Flow (DCF)
- Reflects stable earnings and long-term value
- Captures the time value of money and growth outlook
✅ Alternative / Cross-Check Methods: → Comparable Companies (P/E ratio) → Comparable Transactions (EV/EBITDA multiple)
✅ Key Inputs & Ratios:
- Revenue growth
- Free Cash Flow
- Profitability margins
- Valuation ratios: P/E, EV/FCF, PEG
The success of your valuation depends heavily on the quality of your projections—especially revenue, margins, capex, and working capital.
📊 What About Other Stages?
Here’s a quick look at how valuation shifts across stages:
- Startup: Use Scorecard, Berkus, or Cost-based methods
- Young Growth: Early-stage DCFs and EV/Sales (or Users)
- High Growth: DCF and EV/EBITDA become more relevant
- Mature Stable: DCF or Relative Valuation with earnings multiples
- Decline: Price-to-Book or Liquidation Value
👉 The valuation method must align with both business maturity and purpose—whether it’s selling, fundraising, restructuring, or taxation.
📥 Want the full chart that maps all methods by life stage and valuation purpose?
Download the visual guide here → https://corporate-finance-learning.kit.com/ff3854d4c0
If you’re working on a valuation and unsure what approach to use—this chart will clarify the path forward in seconds.