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Valuation Of Growth Firms: Theoretical Modeling

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  • Damir Tokic

    (University of Houston – Downtown, Houston, USA)

Abstract

This study models the value of growth firms using the modified investment opportunities approach to valuation. The proposed model suggests that the value of a growth firm is function of: 1) profit margins, 2) investments in growth, and 3) the level of growth opportunity. Theoretical predictions suggest that the value is maximized when: 1) the growth opportunity exists and profitability multipliers are significant, 2) profit margins are high, and 3) the investment in growth is optimal.

Suggested Citation

  • Damir Tokic, 2005. "Valuation Of Growth Firms: Theoretical Modeling," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 14(1), pages 13-23, june.
    • Handle: RePEc:avo:emipdu:v:14:y:2005:i:1:p:13-23
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    References listed on IDEAS

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    More about this item

    Keywords

    growth firms; profit margins; growth opportunity; profitability multipliers;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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