scholarly journals Valuation Models Applied to Value-Based Management—Application to the Case of UK Companies with Problems

Forecasting ◽  
2020 ◽  
Vol 2 (4) ◽  
pp. 549-565
Author(s):  
Marcel Ausloos
Keyword(s):  
Business Value ◽  
Free Cash Flow ◽  
Earning Growth ◽  
Mathematical Economics ◽  
Valuation Methods ◽  
Value Based Management ◽  
Valuation Model ◽  
Pattern Size ◽  
Accounting Numbers ◽  
Performance Measurement Systems

Many still rightly wonder whether accounting numbers affect business value. Basic questions are “why?” and “how?” We aim at promoting an objective choice on how optimizing the most suitable valuation methods under a “value-based management” framework through some performance measurement systems. First, we present a comprehensive review of valuation methods. Three valuations methods, (i) Free Cash Flow Valuation Model (FCFVM), (ii) Residual Earning Valuation Model (REVM) and (iii) Abnormal Earning Growth Model (AEGM), are presented. We point out advantages and limitations. As applications, the proofs of our findings are illustrated on three study cases: Marks & Spencer’s (M&S’s) business pattern (size and growth prospect), which had a recently advertised valuation “problem”, and two comparable companies, Tesco and Sainsbury’s, all three chosen for multiple-based valuation. For the purpose, two value drivers are chosen, EnV/EBIT (entity value/earnings before interests and taxes) and the corresponding EnV/Sales. Thus, the question whether accounting numbers through models based on mathematical economics truly affect business value has an answer: “Maybe, yes”.

scholarly journals Performance Evaluation of Stocks’ Valuation Models at MSE

2018 ◽  
Vol 11 (2) ◽  
pp. 7-23
Author(s):  
Zoran Ivanovski ◽  
Zoran Narasanov ◽  
Nadica Ivanovska
Keyword(s):  
Cash Flow ◽  
Stock Prices ◽  
Stock Exchange ◽  
Free Cash Flow ◽  
Main Task ◽  
Stock Valuation ◽  
Market Prices ◽  
Valuation Model ◽  
Relative Valuation ◽  
Dcf Model

Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

The Business Value of IT

2011 ◽  
pp. 102-111 ◽  
Author(s):  
A.J. Gilbert Silvius
Keyword(s):  
Decision Tree ◽  
Empirical Evidence ◽  
Selection Process ◽  
Business Value ◽  
Selection Model ◽  
Business Value Of It ◽  
Scientific Methods ◽  
Valuation Methods ◽  
Valuation Method ◽  
Value Of It

The relation between IT and value is a complex and often disputed one. Researchers and practitioners have created numerous models and valuation methods to capture this value, yet the advanced methods they have developed are hardly used. While these sophisticated instruments are based on scientific methods and empirical evidence, managers reject them, preferring to use methods they intuitively understand. What is missing that causes this mismatch? This chapter aims to add to the understanding of valuation methods by providing a comprehensive selection model for selecting the valuation method that fits the characteristics of the investment. The authors provide a categorized overview of valuation method and identify the qualities of and issues with each method or approach. They analyze how these methods can be combined in an investment selection process and identify the characteristics of an investment that determine the applicability of a given method. They conclude the paper by combining these characteristics in a decision tree shaped selection model to select the appropriate valuation method for any given set of characteristics.

The Role of Value Based Management in Resolving the Contradictions of Property Relations: the Model of Hired Manager Motivation

2019 ◽  
Vol 2019 (5) ◽  
pp. 15-39
Author(s):  
Marina Ilyina ◽  
Marina Botnaryuk
Keyword(s):  
Industrial Relations ◽  
Qualitative Change ◽  
Business Value ◽  
Value Management ◽  
Property Relations ◽  
Value Based Management ◽  
Partial Transfer ◽  
Top Manager

The development of productive forces in time predetermines qualitative change of industrial relations that creates a basis for contradictory property relations involving the division of the range of powers of the owner and their partial transfer to an additional subject of ownership or a hired top manager. The article describes the conflicting interests of a hired manager and owner in relation to ownership object and the implications while realizing these interests which entail the emergence of “agency problem” or “agency relations”. We study the concept of “agency costs” and their essence. We propose to use the method of business value management as a basis for a model of long-term motivation of the top manager and, thus, try to reconcile the interests of the owner and the top manager in the course of company expansion.

scholarly journals Voluntary liquidation: When is it financially profitable?

2019 ◽  
pp. 51-75
Author(s):  
Paweł Wnuczak
Keyword(s):  
Decision Making ◽  
Cash Flow ◽  
Mathematical Finance ◽  
Free Cash Flow ◽  
Rate Of Return ◽  
Value Based Management ◽  
The Subject ◽  
The Relationship ◽  
Voluntary Liquidation ◽  
Insight Into

The aim of this article is to offer insight into a concept making it possible to assess the financial rationality of the voluntary liquidation of businesses. The author of the study presents a decision-making algorithm that should be applied before deciding to voluntarily liquidate a business entity. The algorithm is based on the concept of Value Based Management (VBM), and the related calculations have been performed following the basic rules of mathematical finance. The presented solution is also based on the calculation of free cash flow generated by an enterprise for its owners and on investigating the relationship between the said cash flow and the rate of return expected to be attained by the enterprise’s owners. Because no such models are given or discussed in the literature covering the subject matter, it appears that the proposed solution may become a valuable tool to improve the process of making a decision in the scope of voluntary liquidation of an enterprise.

scholarly journals Valuing Coca-Cola Using The Free Cash Flow To Equity Valuation Model

2012 ◽  
Vol 10 (11) ◽  
pp. 629
Author(s):  
John C. Gardner ◽  
Carl B. McGowan, Jr ◽  
Susan E. Moeller
Keyword(s):  
Cash Flow ◽  
Normal Growth ◽  
Free Cash Flow ◽  
Equity Valuation ◽  
Cost Of Equity ◽  
Font Size ◽  
Valuation Model ◽  
A Value ◽  
Equity Model ◽  
The Cost

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify;" class="MsoNormal"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">In this paper, we provide a detailed example of applying the free cash flow to equity valuation model proposed in Damodaran (2006).<span style="mso-spacerun: yes;"> </span>Damodaran (2006) argues that the value of a stock is the discounted present value of the future free cash flow to equity discounted at the cost of equity.<span style="mso-spacerun: yes;"> </span>We combine the free cash flow to equity model with the super-normal growth model to determine the current value of Coca-Cola.<span style="mso-spacerun: yes;"> </span>At the time of this paper, we determined a value of Coca-Cola at $161 billion using the free cash flow to equity model, and the actual market value of Coca-Cola was $150 billion.<span style="mso-spacerun: yes;"> </span><strong style="mso-bidi-font-weight: normal;"></strong></span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

Accounting Conservatism and the Valuation of Accounting Numbers: Evidence on the Feltham-Ohlson (1996) Model

2000 ◽  
Vol 15 (3) ◽  
pp. 271-292 ◽  
Author(s):  
Anwer S. Ahmed ◽  
Richard M. Morton ◽  
Thomas F. Schaefer
Keyword(s):  
Explanatory Power ◽  
Accounting Conservatism ◽  
Information Dynamics ◽  
Lower Growth ◽  
Book Value ◽  
Earnings Dynamics ◽  
Valuation Model ◽  
Accounting Numbers ◽  
Linear Information ◽  
Stock Market Valuation

We empirically investigate the effects of accounting conservatism on (1) the stock market valuation of operating assets in the context of the Feltham-Ohlson (1996) model and (2) the weight on operating assets in the Feltham-Ohlson abnormal operating earnings dynamics (hereafter referred to as the LIM conservatism parameter). Consistent with the Feltham-Ohlson (1996) model, we find that accounting-based conservatism proxies are positively related to the valuation weight on operating assets. Furthermore, the accounting-based conservatism proxies have incremental explanatory power even after controlling for (1) size, (2) book value (or sales) growth, and (3) leverage. These results are robust with respect to alternative empirical specifications of the valuation model and the choice of proxies for accounting conservatism. We also find, consistent with prior research but not with the Feltham-Ohlson model, that the sign of the LIM conservatism parameter is on-average negative. We provide evidence on the types of firms for which the linear information dynamics appears to hold better or worse. More specifically, the firms with negative values of the parameter are significantly smaller, less profitable and experiencing lower growth rates than firms with positive values of the parameter. Moreover, the relation between accounting-based conservatism proxies and the LIM conservatism parameter is fairly strong for the subsample of firms with high levels of profitability.

FUZZY REAL OPTIONS VALUATION FOR OIL INVESTMENTS

2009 ◽  
Vol 15 (4) ◽  
pp. 646-669 ◽  
Author(s):  
İrem Uçal ◽  
Cengiz Kahraman
Keyword(s):  
Real Options ◽  
Hybrid Approach ◽  
Cash Flows ◽  
Oil Field ◽  
Suggested Model ◽  
Loss Of Information ◽  
Valuation Methods ◽  
Valuation Model ◽  
Real Options Valuation ◽  
Options Valuation

Traditional valuation methods are less viable under uncertainty. Hence, other methods such as real options valuation models, which can minimize uncertainty, have become more important. In this study, the hybrid approach suggested by Carlsson and Fuller is examined for the case of discrete compounding as this approach better models risky cash flows. A new real options valuation model that will evaluate the investment in a more realistic way is suggested by postponing the defuzzification of parameters in early stages. The suggested model has been applied to the data of an oil field investment and in conclusion the loss of information caused by early‐defuzzification has been determined. Santrauka Tradiciniai vertinimo metodai yra mažiau patikimi esant neapibrėžtumams. Vadinasi, kiti metodai, tokie kaip realių pasirinkčių vertinimo modeliai, kurie gali minimizuoti neapibrėžtumus, tampa svarbesni. Šiame straipsnyje nagrinėjamas hibridinis Carlsson ir Fuller metodas, kuris buvo panaudotas diskrečiajam rizikingų pinigų srautų modeliavimui. Pasiūlytas naujas realių pasirinkčių vertinimo modelis, kuris realistiškiau įvertins investicijas, rodiklius apibūdinančią neapibrėžtą informaciją apdorojant ankstyvojoje stadijoje. Pasiūlytas modelis buvo pritaikytas investicijoms į naftos verslą modeliuoti, nustatytas informacijos nuostolis, kuris atsiranda dėl ankstyvo neapibrėžtų duomenų apdorojimo.

scholarly journals The Evolution in Value Relevance of Accounting Measures in Indonesia

2020 ◽  
Vol 22 (1) ◽  
pp. 49
Author(s):  
Eko Suwardi
Keyword(s):  
Value Relevance ◽  
Emerging Market ◽  
Panel Data Analysis ◽  
Balance Sheet ◽  
Share Price ◽  
Cross Sectional ◽  
Valuation Model ◽  
Earnings Per Share ◽  
Panel Regressions ◽  
Accounting Numbers

This paper utilizes the model of share price, which is derived from the valuation model of residual income, to rigorously assess the evolution of value relevance of accounting measures in Indonesia, an emerging market country which has its landscape of equity valuation changed substantially. Using two different approaches, cross sectional and panel regressions, the results indicates a strong linear association between share price and accounting measures. Cross-sectional yearly price regressions provide a strong evidence of non-linear changes on the value relevance of accounting measures over time.  Moreover, using panel data analysis, the results of unconditional comparison tests reveal that that the increased value-relevance of the balance sheet would be offset by a reduction of the value-relevance of earnings per share during IFRS regime. It could potentially contribute to explain the decrease in value relevance of accounting numbers during the switchover to IFRS in Indonesia.

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