Discounted 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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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
7879.
Length: 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 Handle: RePEc:pra:mprapa:7879
Find related papers by JEL classification: 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; Investment Policy 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 and Programming - - - Input-Output Models M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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