Valuation Metrics

Market capitalization, or "market cap" for short, is the number of shares outstanding multiplied by the per-share price. As an example, a company with a share price of $10 with 100 million shares outstanding would have a market cap of $1.0 billion. If this same company had 200 million shares outstanding and the price per share were $5, the market cap would remain $1.0 billion. 
As an extension of this, valuations are really assessments of market capitalization as compared to the company's intrinsic value - with a company's intrinsic value defined as the sum of all future cash flows discounted back to the present.  If discounted cash flow valuation reveals the intrinsic value or theoretical value of the company to be below its current market cap, then the company's shares are undervalued.  
Although this concept seems fairly straightforward, today's investing climate is anything but that.  Few companies trade at a price 1X the sum of all future cash flows discounted back to the present, but rather trade at multiples several times that of the sum of all future cash flows discounted back to the present.  Peer and industry comparison is used to reveal what is a fair multiple of discounted cash flows - in a nutshell, this reveals the all-important figure of how much other investors are willing to pay for cash flows within a given industry. 
But discounted cash flow analysis

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