An alternative approach to firms’ evaluation: expert systems and fuzzy logic
AbstractDiscounted Cash Flow techniques are the generally accepted methods for valuing firms. Such methods do not provide explicit acknowledgment of the value determinants and overlook their interrelations. This paper proposes a different method of firm valuation based on fuzzy logic and expert systems. It does represent a conceptual transposition of Discounted Cash Flow techniques but, unlike the latter, it takes explicit account of quantitative and qualitative variables and their mutual integration. Financial, strategic and business aspects are considered by focusing on twenty-nine value drivers that are combined together via “if-then” rules. The output of the system is a real number in the interval [0,1], which represents the value-creation power of the firm. To corroborate the model a sensitivity analysis is conducted. The system may be used for rating and ranking firms as well as for assessing the impact of managers’ decisions on value creation and as a tool of corporate governance.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7879.
Date of creation: Apr 2004
Date of revision:
Publication status: Published in International Journal of Information Technology and Decision Making 5.1(2006): pp. 195-225
Firms’ evaluation; fuzzy logic; expert system; rating; acquisition; sensitivity analysis;
Other versions of this item:
- Carlo Alberto Magni & Stefano Malagoli & Giovanni Mastroleo, 2006. "An Alternative Approach To Firms' Evaluation: Expert Systems And Fuzzy Logic," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 195-225.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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- Magni, Carlo Alberto, 2004.
"Rating and ranking firms with fuzzy expert systems: the case of Camuzzi,"
5889, University Library of Munich, Germany.
- Magni, Carlo Alberto, 2007. "Rating and ranking firms with fuzzy expert systems: the case of Camuzzi," MPRA Paper 5646, University Library of Munich, Germany.
- Magni, Carlo Alberto, 2007. "Investment decisions, equivalent risk and bounded rationality," MPRA Paper 6073, University Library of Munich, Germany.
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