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An Alternative Approach To Firms' Evaluation: Expert Systems And Fuzzy Logic

  • CARLO ALBERTO MAGNI

    ()

    (Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, 41000 Modena, Italy)

  • STEFANO MALAGOLI

    (Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, 41000 Modena, Italy)

  • GIOVANNI MASTROLEO

    (Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, 41000 Modena, Italy)

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 29 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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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Information Technology and Decision Making.

Volume (Year): 05 (2006)
Issue (Month): 01 ()
Pages: 195-225

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Handle: RePEc:wsi:ijitdm:v:05:y:2006:i:01:p:195-225
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  1. 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.
  2. Carlo Alberto Magni & Giovanni Mastroleo & Marina Vignola & Gisella Facchinetti, 2009. "Strategic options and expert systems: a fruitful marriage," PROYECCIONES FINANCIERAS Y VALORACION 006122, MASTER CONSULTORES.
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