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Implementation Of Corporate Valuation Techniques In Practice

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  • Kiss Anita

    (University of Debrecen, Faculty of Economics and Business)

Abstract

This paper focuses on the main tools and techniques of firm valuation. One of the objectives in this paper is to present the reasons for such differences in value across different models, and to help in choosing the right model for a specific task. In today's management literature there are a lot of evaluation models, which based on the different approaches. The most important dimensions in the evaluation are the past performance analysis, the current value of the firm based on the forecast period and the appraisal of future opportunities. Nowadays it is quite problematic that these concepts regarding the valuation methods used in practice are not homogeneous. In view of the major principles is equal, but the details are different. In this paper my goal is to categorize the methods in the right section and to demonstrate the characteristics, advantages and disadvantages as well. This study proceeds as follow. The first section classifies and categorizes the different valuation approaches, which are the ratios based on accounting data, the asset-based approach, the income-based approach within the discounted cash flow models and the value added methods, the relative valuation, at last the real options. The second part presents the main features and implementation of the methods. Finally, the third section concludes what might be learned from this study. Based on the related literature reviewed and my previous researches I conclude that, in the evaluation, the problem is not that there are not enough models to complete the task but on the contrary, the selection of the appropriate model is the first challenge in the work. The different approaches lead to significantly different values. The other main finding of this work that, professionals involved in the assessment task explained the reason for the differences, and selection the correct model which is the best fit for the job. Considering the models described below a best model cannot be identified. This study also concludes that selecting the applicable model depends on the current situation and characteristics of the company or assets.

Suggested Citation

  • Kiss Anita, 2015. "Implementation Of Corporate Valuation Techniques In Practice," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 831-838, July.
    • Handle: RePEc:ora:journl:v:1:y:2015:i:1:p:831-838
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    References listed on IDEAS

    as
    1. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    2. 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.
    3. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    firm valuation; valuation models; discounted cash flow models; economic value added;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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