IDEAS home Printed from
   My bibliography  Save this article

Profitability, balance sheet data, real options and the valuation of equity




We illustrate the impact that real options generally available to firms can have on the value of corporate equity, and in particular the valuation errors that are likely to arise from ignoring them. Moreover, we develop real option values in terms of the profitability and balance sheet (bookkeeping) measures that appear on published corporate financial statements. Our analysis is conducted in terms of two of the more generally understood real options available to firms; namely, the option to liquidate (or abandon) a firm’s current productive activities and the option to implement (or delay) the unexploited but potentially profitable capital projects that are available to it.

Suggested Citation

  • Herbert, Ian & Shinozawa, Yoshikatsu & Tippett, Mark, 2008. "Profitability, balance sheet data, real options and the valuation of equity," Journal of Financial Transformation, Capco Institute, vol. 22, pages 195-201.
  • Handle: RePEc:ris:jofitr:0846

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    cash flow; cost of capital; equity; real options;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:0846. 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: (Prof. Shahin Shojai) or (Rebekah McClure). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.