An analyst builds a careful DCF for a holding already valued through multiples: five-year projections, a justified WACC, a terminal value from perpetuity growth. In committee, the gap with the comparables valuation is immediately visible: close to 17% of enterprise value between the two methods. Someone asks which one holds. The correct answer is almost never "average the two" or "keep the DCF because it's more detailed." It comes down to what the DCF is actually meant to do in a holding valuation, and in most cases that is not to decide the outcome on its own.
What IPEV says about method selection
IPEV 2025 groups valuation techniques into three approaches — market, income and replacement cost — and notes that accounting standards impose no hierarchy between them (§3.2, §3.7). It asks valuers to favor techniques that draw on observable market data (§3.2) and considers the techniques of sections 3.4 to 3.9 — multiples, DCF, net assets — more applicable to established businesses, with calibration to a recent investment more applicable to early-stage ones (§3.3). The price of a recent investment is not a technique in itself: it is used to calibrate inputs (§3.3). As for DCF, IPEV stresses its high subjectivity and presents it as a useful way to corroborate a fair value reached through market-based techniques (§3.7).
This ranking is not arbitrary. A trading multiple embeds, by construction, the market's expectation on growth, risk and cycle for a given sector, without the analyst having to state those assumptions explicitly. A DCF, by contrast, forces them into the open: cash flow growth rate, terminal margin, WACC. Each of those assumptions is a source of error or bias, and stacking them in a discounted model amplifies uncertainty rather than reducing it. IPEV makes the same point: the present value is often sensitive to small changes in these inputs (§3.7).
When DCF becomes the right method
DCF changes status the moment the condition that justifies the market approach is missing. Three concrete cases:
- Stable, predictable cash flows: infrastructure, concessions, long-term contracted assets. The trading comparables universe is often too narrow or too heterogeneous to produce a defensible multiple, while contractual cash flows make the projection reliable. IPEV notes that an income approach is often used for infrastructure, as limited market transaction data is generally available (§5.16).
- No usable comparables set: a company in a niche segment with no listed peers and no recent documented transactions.
- Cross-checking a chosen multiple: even when comparables hold up, a DCF built on the same business plan assumptions acts as a guardrail — a large divergence from the multiples result is often a sign that one assumption (growth, margin, capex) is stale or optimistic.
Conversely, for a high-growth holding without a stabilized cash flow history, DCF is rarely the primary method: IPEV flags a significant risk in applying it to start-up or loss-making companies (§3.7), and terminal value carries an overwhelming share of the result, which amounts to valuing today a bet on a future market state rather than on observable fundamentals.
A worked example
A holding reports 12M€ of EBITDA. The trading comparables panel, filtered on economic profile and size, converges on a median multiple of 8.0x EV/EBITDA — an enterprise value of 96M€.
The same analyst builds a five-year DCF from the same business plan: free cash flow of 8.4M€ in the base year, growing 6% a year, an 11% WACC, and 2% perpetuity growth for the terminal value. The calculation lands on an EV of about 112M€, two thirds of it from terminal value — a gap of close to 17% versus the multiples result.
Three possible readings of that gap, and only one right answer depending on the case:
- The comparables panel underprices the company's growth trajectory — the multiple should then be adjusted for that difference (IPEV §3.4), rather than the multiples-based EV simply labeled conservative: IPEV warns against excessive caution (§2.5).
- The DCF's WACC or perpetuity growth are too optimistic — the DCF then serves as a warning signal on the business plan assumptions, not as a new valuation.
- The sector is going through a multiple compression phase unrelated to the company's fundamentals — a case where both methods are right, each on its own horizon.
In all three cases, the gap is settled neither by averaging nor by principle: IFRS 13 (§63), cited by IPEV (§3.2), requires assessing the reasonableness of the range and retaining the point most representative of fair value. In practice the market approach usually remains the reference, and the DCF documents where the gap comes from.
What this changes for the audit trail
A committee that documents only the final figure — "EV retained: 96M€" — invites the auditor's question: why this method, and what does the DCF say? A file that instead presents both results, states which one is primary and why, turns the auditor's question into a simple check of a logic already written down.
That is the role fair value research plays in Jolv: the comparables panel and the configurable liquidity discount produce the primary valuation, with the multiple and the equity bridge documented — see the Fair value & multiples feature. The method-selection logic by asset class and IPEV trigger is detailed on the valuation methods page. For a fund scoping this before going further, the pricing page lays out what is included. Peer selection itself is covered in comparable company selection.
DCF is not a method to discard. It is a method to place correctly in the reasoning — and that placement, more than the discount rate chosen, is what an auditor checks first.
Sources
- IPEV Board, International Private Equity and Venture Capital Valuation Guidelines, December 2025 edition (effective for periods beginning on or after 1 April 2026), §2.5, §3.2, §3.3, §3.4, §3.7 and §5.16
- Commission Regulation (EU) 2023/1803 of 13 August 2023, IFRS 13 Fair Value Measurement, OJ L 237, 26.9.2023, §61–63 and §74