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Are Company Valuation Models the Same? – A Comparative Analysis between the Discounted Cash Flows (DCF), the Adjusted Net Asset, Value and Price Multiples, the Market Value Added (MVA) and the Residual Income (RI) Models

Author

Listed:
  • Ion STANCU

    (The Bucharest University of Economic Studies; Financial Studies Institute Vice-president)

  • Laura OBREJABRAŞOVEANU

    (The Bucharest University of Economic Studies)

  • Anamaria CIOBANU

    (The Bucharest University of Economic Studies)

  • Andrei Tudor STANCU

    (Norwich Business School)

Abstract

In this article, we analyze and compare several well-known methods of company valuation. In particular, we focus on the income approach (discounted cash flows, the market value added or residual income), the assets approach (net asset), and the market approach (based on value and price multiples) to value companies. This initiative aims to identify the hypothesis considered and to test the equivalence of the results obtained by these valuation methods.

Suggested Citation

  • Ion STANCU & Laura OBREJABRAŞOVEANU & Anamaria CIOBANU & Andrei Tudor STANCU, 2017. "Are Company Valuation Models the Same? – A Comparative Analysis between the Discounted Cash Flows (DCF), the Adjusted Net Asset, Value and Price Multiples, the Market Value Added (MVA) and the Residua," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(3), pages 5-20.
    • Handle: RePEc:cys:ecocyb:v:51:y:2017:i:3:p:5-20
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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    3. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    Cited by:

    1. Kowalski Michał J. & Kazak Jan K., 2020. "Value-Based Management for Real Estate Developers’ Activities," Real Estate Management and Valuation, Sciendo, vol. 28(4), pages 48-62, December.

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    More about this item

    Keywords

    discounted cash flows; net asset; value and price multiples; the market value added; residual income;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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