Relative valuation ratios should be used to supplement but not to supplant the true determination of value for productive assets as found in intrinsic value models.

A closer look at relative valuation Unlike the DCF model, relative valuation is based on a different principle and therefore, has its own set of issues.

However, the price-earnings relative valuation model assumes that the long-term growth and risk profile of the firm has not fundamentally changed over time.

However, the price-earnings relative valuation model assumes that the long-term growth and risk profile of the firm has not fundamentally changed over time.