I've always wondered this myself. I ended up taking a course on financial valuations. My novice takeaways were there were two approaches: 1. An intrinsic, det

I've always wondered this myself. I ended up taking a course on financial valuations. My novice takeaways were there were two approaches: 1. An intrinsic, detailed "bottoms up" approach by projecting future cash flows and discounting their value back to the present day. There might be 2 stages, the first years of explicit growth assumptions and the second along some kind of long term growth rate. 2. A market based, "top down" approach where you find comparable transactions and make adjustments for different levels of investment, leverage, to try to get an apples to apples comparison. In either case, you also factor in gains you'd get from a strategic acquisition like eliminating redundant departments. Compare this to an acquisition by a PE firm, that doesn't do anything other than buy and sell equity in companies. What I realized was it wasn't a science. Sure it deals mainly with numbers. And from an outside party you think it's this really rigorous, matter of fact assessment. But there's lots of areas where there are just guesses, albeit with a lot of money.