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Discounting Cash Flow Method Application in Banking Evaluation

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  • Mitica Pepi

    (“Ovidius†University of Constanta)

Abstract

The DCF (Discounted Cash Flow) approach capitalizes prospectus eamings forecasts using comparable company DCF multiples. For both methods, the estimated values are compared to actual market prices to obtain a valuation error. The discounted cash flow method can be applied in the valuation of banking companies in this method all future cash flows are discounted to the present value. From a theoretical point of view, it is considered the most correct but perhaps also the most complex. Very important in this approach are the accuracy with which future revenue streams are estimated and the correctness of setting the discount rate level. This paper examines the accuracy of discounted cash flow (DCF) methods of equity valuation for firms that obtained listing on the bank. The DCF method is implemented by discounting cash flow forecasts based on information contained in listing prospectuses.

Suggested Citation

  • Mitica Pepi, 2020. "Discounting Cash Flow Method Application in Banking Evaluation," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 1039-1047, December.
    • Handle: RePEc:ovi:oviste:v:xx:y:2020:i:2:p:1039-1047
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    More about this item

    Keywords

    discount rate; net treasury; net working capital; discounted cash-flow;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other
    • G19 - Financial Economics - - General Financial Markets - - - Other

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