The Valuation of Cash Flow Forecasts: An Empirical Analysis
AbstractThis article compares the market value of highly leveraged transactions to the discounted value of their corresponding cash flow forecasts. For the authors' sample of 51 highly leveraged transactions completed between 1983 and 1989, the valuations of discounted cash flow forecasts are within 10 percent on average of the market values of the completed transactions. Their valuations perform at least as well as valuation methods using comparable companies and transactions. The authors also invert their analysis by estimating the risk premia implied by transaction values and forecast cash flows and relating those risk premia to firm and industry betas, firm size, and firm book-to-market ratios. Copyright 1995 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 50 (1995)
Issue (Month): 4 (September)
Other versions of this item:
- Steven N. Kaplan & Richard S. Ruback, 1994. "The Valuation of Cash Flow Forecasts: An Empirical Analysis," NBER Working Papers 4724, National Bureau of Economic Research, Inc.
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- Blume, Marshall E, 1975. "Betas and Their Regression Tendencies," Journal of Finance, American Finance Association, vol. 30(3), pages 785-95, June.
- Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
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- Steven N. Kaplan & Jeremy C. Stein, 1993. "The Evolution of Buyout Pricing and Financial Structure," NBER Working Papers 3695, National Bureau of Economic Research, Inc.
- Cornell, Bradford & Green, Kevin, 1991. " The Investment Performance of Low-Grade Bond Funds," Journal of Finance, American Finance Association, vol. 46(1), pages 29-48, March.
- Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
- Klemkosky, Robert C & Martin, John D, 1975. "The Adjustment of Beta Forecasts," Journal of Finance, American Finance Association, vol. 30(4), pages 1123-28, September.
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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