Why do valuation methods give different answers?
Because each encodes different assumptions about the future. The gap is not an error to average away — it is the most useful output of the whole exercise.
Because each method encodes a different assumption about the future, and those assumptions genuinely differ. A gap between methods is not an error. It is the most useful thing the exercise produces.
What a gap usually means
| Pattern | What it is telling you |
|---|---|
| DCF above multiple | Your forecast is more optimistic than the market |
| Multiple above DCF | The market pays for something your forecast understates |
| Asset value above both | The business earns less than its assets are worth |
| All three close | The assumptions are consistent — rare and worth saying |
What not to do with it
Do not average them. Averaging three numbers produces a fourth number that no method supports and nobody will defend under questioning. It also destroys the only information the disagreement contained.
Presenting a range honestly
Show all three, name the gap, and state which assumption you are least confident about. A seller who does this is more credible than one presenting a single confident figure, because the second invites the question of what was left out.
How to value a business covers running the three; common valuation mistakes covers what usually causes the gap.