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Methods and examples of company valuation: Using DDM and FCFF to value a company

In: Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024)

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  • Zhuo Chen

    (University of Wisconsin Madison)

Abstract

This paper explores the application of the Dividend Discount Model (DDM) and Free Cash Flow to the Firm (FCFF) in valuing companies, particularly focusing on CyberAgent Inc., a leading digital media and Internet group in Japan. The analysis demonstrates how DDM, with its emphasis on dividend payouts, serves as a reliable tool for evaluating companies with stable dividend histories, providing a straightforward method for estimating intrinsic value based on future dividends. In contrast, FCFF offers a comprehensive valuation framework that considers all cash flows available to capital providers, making it particularly useful for growth companies that reinvest earnings rather than distribute dividends. The paper concludes the business valuation methods by emphasizing the importance of selecting the appropriate valuation model based on the specific characteristics of the company, highlighting how both DDM and FCFF contribute to wisely investment decisions and deeper insights into a company’s financial position and future prospects.

Suggested Citation

  • Zhuo Chen, 2025. "Methods and examples of company valuation: Using DDM and FCFF to value a company," Advances in Economics, Business and Management Research, in: Junfeng Lu (ed.), Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024), pages 362-368, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-652-9_37
    DOI: 10.2991/978-94-6463-652-9_37
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