Company valuation methods. The most common errors in valuations
AbstractIn this paper, we describe the four main groups comprising the most widely used company valuation methods: balance sheet-based methods, income statement-based methods, mixed methods, and cash flow discounting-based methods. The methods that are conceptually "correct" are those based on cash flow discounting. We will briefly comment on other methods since -even though they are conceptually "incorrect"- they continue to be used frequently. We also present a real-life example to illustrate the valuation of a company as the sum of the value of different businesses, which is usually called the break-up value. We finish the paper with a list of the most common errors that the author has detected in the more than one thousand valuations he has had access to in his capacity as business consultant and teacher.
Download InfoIf 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.
Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/449.
Length: 30 pages
Date of creation: 11 Jan 2002
Date of revision:
Value; price; free cash flow; equity cash flow; market value;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ACC-2002-11-18 (Accounting & Auditing)
- NEP-ALL-2002-11-18 (All new papers)
- NEP-CFN-2002-11-18 (Corporate Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Miller, Merton H, 1986. "Behavioral Rationality in Finance: The Case of Dividends," The Journal of Business, University of Chicago Press, vol. 59(4), pages S451-68, October.
- Fernández , Pablo, 2002.
"The value of tax shields is not equal to the present value of tax shields,"
IESE Research Papers
D/459, IESE Business School.
- Fernandez, Pablo, 2004. "The value of tax shields is NOT equal to the present value of tax shields," Journal of Financial Economics, Elsevier, vol. 73(1), pages 145-165, July.
- Cindea Diana Marieta, 2009. "Methods Designed To Determine The Value Of The Firm And Their Deficiences," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 3(1), pages 131-136, May.
- Marc Vilanova & Josep Lozano & Daniel Arenas, 2009. "Exploring the Nature of the Relationship Between CSR and Competitiveness," Journal of Business Ethics, Springer, vol. 87(1), pages 57-69, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvia Jimenez).
If references are entirely missing, you can add them using this form.