scholarly journals FIRM VALUATION CONCEPT AND DISCOUNTED CASH FLOW METHOD: A COMPARISON OF STOCK MARKETS

10.26458/1922 ◽  
2019 ◽  
Vol 19 (2) ◽  
pp. 51-60
Author(s):  
Esref Savaş BASCI
Keyword(s):  
Cash Flow ◽  
Capital Markets ◽  
Firm Value ◽  
Market Value ◽  
Firm Valuation ◽  
Share Price ◽  
Current Status ◽  
Discounted Cash Flow ◽  
Future Expectations ◽  
Market Values

Company (or firm) valuation – an evaluation process of a company to appreciate the value of a company’s right in this company or business. There are two objective and subjective aspects of value. The subjective value is the value determined by individuals and desires. For example, it is a subjective decision that the investor assesses the competitor over the normal to be monopoly in the market. The objective value is the value determined by the cost and benefits of the goods and services.Although there are many performance measures that measure company success, none is as comprehensive as value. There is a strong and linear relationship between a company’s market value and its discounted cash flows. Because earnings are used to generate the income statement, they cannot be used to measure cash flows.Firm valuation means seeking the goal of the firm which is listing it on the Stock Exchange. Real value of the firm can be calculate with different methodologies. These methods are related to future expectations or background of the firm’s financial data. Discounted Cash Flow (DCF) Method is one of the firm valuation methods used all around the world and it is accepted by the experts.Market value is also used for comparison and performance measurement purposes. Valuation of a company’s future expectations, current status, mergers or acquisitions is extremely important. Even the firm value can be used to compare the capital markets of countries. In our study, capital markets and total market values of selected countries are compared. The increase in the share price increases the market value of the company. Therefore, the aim of the firms should be to increase the shareholder value or to take decisions to increase the stock price.   

Profitability, risk and cash flow deficit for beginning cow–calf producers

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carlos J.O. Trejo-Pech ◽  
Jared Bruhin ◽  
Christopher N. Boyer ◽  
S. Aaron Smith
Keyword(s):  
Cash Flow ◽  
Opportunity Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Herd Size ◽  
Discounted Cash Flow ◽  
Production Risk ◽  
Content Type ◽  
Market Values ◽  
Cow Calf

PurposeThe purpose of this study is to estimate the amount of cash flow deficit, if any, needed to maintain the operating costs and service debt of a startup cow–calf enterprise. The study compares long-term profitability and risk between starting small and building a herd to full carrying capacity or by starting at desired herd capacity.Design/methodology/approachA dynamic cattle growth model was developed to capture expanding and maintaining the desired herd size. Discounted cash flow (DCF) models over a 15-year period were calculated to estimate net present value (NPV), modified internal rate of return (MIRR) and cash flow deficit to keep the business operating and service debt. Simulation analyses were conducted considering price and production risk.FindingsStarting at the desired herd size was preferred, according to NPV/MIRR and cash flow deficit, but the differences were not substantial. Assuming the operation is liquidated at book values, there was a 36.3% probability of this enterprise having a zero or positive NPV. If the conservative terminal value assumption is relaxed up to feasible market values, the cow–calf enterprise is economically attractive at an estimated 2.4% opportunity cost of capital. However, the producer would experience a cash flow deficit during the first seven years, which was simulated to be $14,892 and $15,985 annual for both strategies.Originality/valueInnovative methods used in this study include varying the annual opportunity cost of capital as a function of financing decisions, stochastic prices by cattle type and stochastic weaning weights that are a function of a dynamic cattle model.

Teuer Furniture (A): Discounted Cash Flow Valuation

2017 ◽  
pp. 1-23
Author(s):  
Mitchell A. Petersen
Keyword(s):  
Cash Flow ◽  
Firm Value ◽  
Capital Investment ◽  
Balance Sheet ◽  
The United States ◽  
List Type ◽  
Discounted Cash Flow ◽  
Firm Level ◽  
Income Statement ◽  
Pro Forma

Teuer Furniture is a privately owned, moderately sized chain of upscale home furnishing showrooms in the United States. The firm survived the economic recession and by the end of 2012, it has regained its financial footing. Now that the firm is more secure financially, some of its long-term investors have asked to cash out their investments. This will be the first time that Teuer has repurchased its equity; the company has paid dividends since 2009. Chief financial officer Jennifer Jerabek and her team have been given the task of valuing Teuer using a discounted cash flow approach. The discount rate is given in the case, and the students need to build a pro forma income statement, balance sheet, and cash flow statement and then calculate a per-share value for Teuer. Estimate firm value using a discounted cash flow approach Construct firm-level estimates of the pro forma income statement, balance sheet, and cash flow from assets based on store-level estimates Recognize how forecasts of revenues, costs, and capital investment are constructed, how the individual estimates relate to each other, and how the forecasts depend upon the underlying economics of the business Evaluate and defend the validity of the firm’s forecasts and the valuation model

Do combining value estimates increase valuation accuracy? Evidence from Indian chemical industry

2015 ◽  
Vol 5 (2) ◽  
pp. 170-183 ◽  
Author(s):  
Ranjit Tiwari ◽  
Harish Kumar Singla
Keyword(s):  
Cash Flow ◽  
Chemical Industry ◽  
Residual Income ◽  
Annual Data ◽  
Discounted Cash Flow ◽  
Content Type ◽  
Market Values ◽  
Valuation Model ◽  
Residual Income Model ◽  
Income Model

Purpose – Being a developing nation with huge opportunity of growth prospects the assessment of valuation models becomes important to have a more realistic value estimate. The purpose of this paper is to empirically examine the comparative accuracy and explanatory performance of discounted cash flow (DCF) and residual income model (RIM) valuation models for the Indian chemical industry and come up with a composite valuation model. Design/methodology/approach – To achieve the objective of the study the authors first determine the intrinsic values using both the models. Comparisons of the models are based on prediction errors and the explanatory performance of market value on value estimates. The study uses panel regression to forecast estimates of earnings and measure explanatory performance. The authors examine the ability of the value estimates to explain cross-sectional variation in the observed market values. The study also uses GMM method for deriving robust estimators. Variables for the study are collected from the CMIE’s prowess data base (release 4). The authors consider all 1,075 BSE listed chemical companies for the purpose of the study. The study uses annual data points starting from 31 March 2002 to 31 March 2011. Findings – The comparative framework shows that both Residual Income model and Composite Valuation model are superior to Discounted cash flow model and are equally likely. But since composite value estimates considers all bonafide informations of individual models, the estimates of Composite Valuation model becomes more reliable. Research limitations/implications – The study only compares and combines the two most widely used valuation models around the world. Future studies can be conducted using the third widely used valuation models, i.e. multiples and see the level of accuracy of individuals as well as the composite model. Originality/value – As a concern very few research has been conducted in this area in India. This paper provides practitioners with a snapshot of the applicability of DCF and RIM valuation models. And also shows how a composite value estimate can improve accuracy.

scholarly journals CORPORATE GOVERNANCE AND FIRM VALUE IN EMERGING MARKETS AN EMPIRICAL ANALYSIS OF ADR ISSUING EMERGING MARKET FIRMS

2012 ◽  
Vol 2 (1) ◽  
pp. 38-51 ◽  
Author(s):  
Aysun Ficici ◽  
C. Bulent Aybar
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Firm Value ◽  
Emerging Market ◽  
Market Value ◽  
Governance Structures ◽  
Market Values ◽  
Good Corporate Governance ◽  
Emerging Market Firms ◽  
The Impact

This study explores the value implications of good corporate governance for a sample of 54 ADR issuing emerging market firms (EMFs) from 9 countries primarily located in the regions of Asia, Eastern Europe and Latin America and the and employs recently constructed company composite corporate governance metric along with some alternative corporate governance measures associated with the origin of the issuing firm. Although the ADR literature primarily focuses on the impact of subscription to US disclosure requirements we contend that company and country specific corporate governance standards play a significant role in the risk reduction and ensuing value capture.  The fundamental inquiry in this study has the following foci: The primary focus is on the impact of corporate governance structures on firm performance as to whether adherence to standards creates market value for ADR issuing EMFs.  Do good corporate governance practices affect the value of EMFs? The secondary focus is concerned with whether the impact of corruption level and legal system in a firm’s home country affect the corporate structures of EMFs thus affecting the market value of firms.  In this study, we utilize Tobin’s q as the measure of firm performance/market value.  Our findings suggest that there is a significant correlation between corporate governance structures of ADR issuing EMFs and their market values and/or performances.  The results also indicate that the level of corruption and legal structures in home countries of EMFs strongly impact the corporate governance structures of these firms and sequentially affect their market values. Therefore, this research further contributes to the scholarly findings and suppositions that corporate structures of firms do create consequences on firm value.

Discounted Cash Flow as a Measure of Market Value

1959 ◽  
Vol 11 (11) ◽  
pp. 15-19 ◽  
Author(s):  
Fred S. Reynolds
Keyword(s):  
Cash Flow ◽  
Market Value ◽  
Discounted Cash Flow

scholarly journals To Iterate Or Not To Iterate? Using The WACC In Equity Valuation

2011 ◽  
Vol 9 (11) ◽  
pp. 29 ◽  
Author(s):  
Patrick J. Larkin
Keyword(s):  
Cash Flow ◽  
Firm Value ◽  
Iterative Procedure ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Debt Ratio ◽  
Discounted Cash Flow ◽  
Valuation Method ◽  
Equity Value ◽  
Current Value

The textbook discounted cash flow (DCF) valuation method involves estimating a target debt ratio for the firm, discounting firm cash flows at the WACC to estimate firm value, then subtracting the current value of debt to get equity value. This method gives the correct equity value in situations in which the firm will move toward the target debt ratio after the transaction is complete, such as takeovers and capital budgeting projects. The textbook method does not work well for estimating equity value in passive investments in which leverage is unlikely to change as a result of the potential transaction. Estimating equity value in passive investments when leverage is unlikely to change requires a simple iterative procedure to correct for circularity, which is demonstrated here. This situation sows confusion among students and practitioners. Finance scholars and textbook authors are aware of the situation but the author has never seen it clearly explained in prior textbooks or articles.

scholarly journals Atributos Corporativos, Qualidade da Governança Corporativa e Valor das Companhias Abertas no Brasil

2006 ◽  
Vol 4 (1) ◽  
pp. 3 ◽  
Author(s):  
Alexandre Di Miceli da Silveira ◽  
Lucas Ayres B. de C. Barros ◽  
Rubens Famá
Keyword(s):  
Corporate Governance ◽  
Instrumental Variables ◽  
Significant Influence ◽  
Empirical Investigation ◽  
Market Value ◽  
Firm Valuation ◽  
Simultaneous Equations ◽  
Market Values ◽  
Governance Quality ◽  
Corporate Governance Quality

This paper investigates the influence of corporate governance quality on the market value of 154 Brazilian listed companies in 2002. As a proxy for corporate governance quality, a broad governance index was built. The empirical investigation employed different econometric approaches with increasing level of complexity, including multiple regressions by ordinary last squares, instrumental variables estimators and simultaneous equations systems. Results obtained with all econometric approaches show a positive and significant influence of corporate governance quality on firms market values. The paper also finds evidence of endogeneity of the corporate governance variable, for which different instruments are proposed. Moreover, results obtained with the simultaneous equations approach suggest that there might be a two-way causality link between corporate governance quality and firm valuation.

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