Advanced Search
MyIDEAS: Login to save this article or follow this journal

Valuation of Customers in Growth Companies - a Scenario Based Model

Contents:

Author Info

  • Manfred Krafft
  • Markus Rudolf
  • Elisabeth Rudolf-Sipötz
Registered author(s):

    Abstract

    In this paper, we evaluate growth stocks by modeling a company´ s customer equity. We start with the observation that the number of customers in successful start-ups increases very quickly (exponentially) in the first few years. Then the customer base converges towards an industry average. On the other hand, the number of clients in poorly performing start-ups rap-idly declines until bankruptcy occurs. These observations imply a "bathtub" shape to the probability distribution for the number of customers in the initial years, i.e., low probabilities for the number of clients close to average but high probabilities for extreme realizations. The valuation procedure we present here is based on a binomial scenario tree technique for the number of clients and the cash flow generated by each client. We show that the model can explain higher company values than can traditional net present value calculations. Further-more, and in contrast to traditional valuation models, increasing the volatility in the change of the number of customers increases the value of each customer.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.vhb.de/sbr/pdfarchive.html
    Download Restriction: no

    Bibliographic Info

    Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

    Volume (Year): 57 (2005)
    Issue (Month): 2 (April)
    Pages: 103-127

    as in new window
    Handle: RePEc:sbr:abstra:v:57:y:2005:i:2:p:103-127

    Contact details of provider:
    Postal: Geschwister-Scholl-Platz 1, 80539 Muenchen
    Phone: 0049 89 2180 2166
    Fax: 0049 89 2180 6327
    Web page: http://www.sbr-online.com
    More information through EDIRC

    Related research

    Keywords: Bathtub Distribution; Bifurcation; Customer Valuation; Customer Equity; Growth Company; Mean Reversion Process; Momentum Process; Real Option; Start-up; Valuation.;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:57:y:2005:i:2:p:103-127. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr) The email address of this maintainer does not seem to be valid anymore. Please ask sbr to update the entry or send us the correct address.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.