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Valuation Methods and Shareholder Value Creation
Abstract
Valuation Methods and shareholder value creation is a complete book about business valuation and value creation. The book explains the nuances of different valuation methods and provides the reader with the tools for analyzing and valuing any business, no matter how complex. With 631 pages divided into four parts, Valuation and shareholder value creation uses 140 diagrams, 211 tables, and more than 100 examples to help the reader absorb these concepts. This book contains materials of the MBA and executive courses that I teach in IESE Business School. It also includes some material presented in courses and congresses in Spain, US, Austria, Mexico, Argentina, Peru, Colombia, UK, Italy, France and Germany. The chapters have been modified many times as a consequence of the suggestions of my students since 1988, my work in class, and my work as a consultant specialized in valuation and acquisitions. I want to thank all my students their comments on previous manuscripts and their questions. The book also has results of the research conducted in the International Center for Financial Research at IESE. Part I - Basics of Valuation Methods and Shareholder Value Creation Part II - Shareholder Value Creation Part III - Rigorous Approaches to Discounted Cash Flow Valuation Part IV - Real options and brands
... Since the value of the unlevered company is constant and unrelated to leverage, the optimal capital structure is the one that maximizes the present value of tax shields." More about the optimal capital structure may be found in chapter 18 of Fernández (2002). ...
... 4.D20. Arguing that different discounted cash flow methods provide different valuations: All methods always give the same value, as it is shown in chapters 17 and 21 of Fernández (2002). This result is logical, since all the methods analyze the ...
... Other valuations of Internet companies using esoteric multiples may be seen inFernández (2002), chapter 12. ...
... (Damodaran, 2012). DCF is a fundamental valuation technique that involves forecasting the company's free cash flow and discounting it back to the present value using a required rate of return [5]. There are two key versions of the DCF model based on the type of cash flows that are discounted: Free Cash Flow to the Firm (FCFF) and Free Cash Flow to Equity (FCFE) [4]. ...
... Relative valuation is widely used because of its simplicity and the intuition behind it. However, it's important to ensure the comparability of the firms being compared and to understand the fundamentals that might cause multiples to vary across the firm's [5]. The weighted average cost of capital (WACC) for the company is determined by taking into account the proportions of debt (wd), preferred stock (wp), and common equity (wc), as well as the costs associated with those components [7]. ...
An Initial Public Offering (IPO) is a pivotal moment in a company’s life cycle. It’s a process where a private company offers its shares to the public in the capital market to raise funds. The move from private to public affecting the company to prepare for many changes, including increased supervision and the responsibility of delivering value to shareholders. However, before stepping on this significant IPO step, the company needs a clear understanding of various factors, which includes macroeconomic conditions, the dynamics of the market it operates in, and the company’s internal conditions. The company, PT XYZ, specializes in creating software solutions, a sector that is currently needed by a lot of company due to digitalization era. Fair share price for PT XYZ must be calculated when it goes public. In addition to understanding the macroeconomic condition, the Porter’s Five Forces framework is described to assess the competitive aspect in the market and potential opportunities. After analysing the external factors, the next step is doing in-depth internal analysis. This involved a SWOT analysis by identifying PT XYZ’s Strengths, Weaknesses, Opportunities, and Threats, and an evaluation of the company’s financial health. The business solution proceeded to the valuation stage, using the Discounted Cash Flow (DCF) method with Free Cash Flow to Equity (FCFE). This process involved making growth projections for the next decade. It anticipates that the company’s growth rate would eventually align with Indonesia’s Gross Domestic Product (GDP), serving as the long-term growth rate. To ensure a holistic evaluation, there must be a complementary valuation method, Relative Valuation. Three similar companies in the software sector were picked and their EV/EBITDA was used as a multiplier ratio. The two separate valuation methodologies led to two distinct results. Thus the average of these two methods can be proposed. Overvalued or undervalued share pricing can significantly affect investor decisions and the amount of funds raised from the IPO.
... Kapitalno intenzivna preduzeća iz oblasti elektroprivrede mogle bi imati zadovoljavajući pokazatelj obrta ukupnih poslovnih sredstava u vrednosti od 0,33, dok bi za preduzeća koja se bave maloprodajom prehrambenih proizvoda, ovaj pokazatelj trebao da bude 10 da bi se smatrao zadovoljavajućim. 39 Za sud o efikasnosti korišćenja ukupnih poslovnih sredstava posmatranog preduzeća, neophodno je u obzir uzeti uslove privređivanja konkretne privredne grane, kao i dugogodišnji trend u posmatranom preduzeću. ...
... Kako bismo izračunali vremensko trajanje jednog obrta ukupnih poslovnih sredstava, stavićemo ga u odnos sa brojem dana u godini, odnosno: Iz utvrđenih odnosa, finansijski menadžer, potencijalni investitor, odnosno kreditor, kao korisnik rezultata finansijske analize, može utvrditi sledeće činjenice za preduzeća A: 39 Smatra se da tipično proizvodno preduzeće ima pokazatelj obrta ukupne poslovne imovine od 1,5. Za više informacija videti: Melicher i Norton (2017). ...
... As Table 1 shows, business valuation methods can be classified into six groups (Fernández 2002). However, business valuations are generally represented by asset-, income-, and market-comparable transaction approaches (Kang 2003 The International Valuation Standards Council (IVSC) defines the asset-based approach as "a means of estimating the value of a business or equity interest, using methods based on the market value of individual business assets minus liabilities" (Parker 2016). ...
... This method requires the individual analysis of cash flow, discount rate according to risk, and timing of receipt of income; the most common income-based methods are discounted cash flow (DCF) analysis and dividend discount analysis (Oliveira et al. 2010;Dyckman 1972). The most common method used in practice is DCF, which assesses whether a firm can generate positive cash flows in the future (Araz et al. 2020;Fernández 2002;Kishore 1996). Previous studies claim that the DCF analysis is the most conceptually correct among quantitative business valuation methods (Jennergren 2008;Jiménez and Pascual 2008;Fernández 2007). ...
As both investment attraction and mergers and acquisitions targeting information technology and platform companies are becoming more important in the digital-centric economic environment, interest in valuing corporate data assets is increasing. Accordingly, among the income approaches used in business valuation, this study presents a data valuation model based on discounted cash flow. This model is expected to be useful for corporate investment decision-making. The assumptions used in this study for the estimation of data income include intangible asset value, exclude net asset value, and data attribution is centered on technology, human resources, and market factors. In particular, data attribution accounts comprise ordinary data research and development, data labor costs, and data advertising expenses. Data costs were divided into those incurred during collection, storage, curation, analysis, and utilization. Financial statements and related data from a real estate information platform operator over three years were collected and used to simulate the data valuation model. The simulation reveals that the operator possesses KRW 472.6 billion in data assets. Ultimately, the data valuation model developed in this study can contribute to strengthening platform operators’ investment attraction, guaranteeing financial sustainability, and transparency and data assetization.
... The cash flows left after covering all the financial requirements, including capital expenditures, debt payments, and working capital needs, are regarded as the free cash flow to equity (Damodaran, 2006;Fernández, 2002). The original Free Cash Flow to Equity is: ...
... FCFE only uses asset cost. CAPM calculates equity cost: [7] CAPM assumes that the risk of giving equity to an investor is composed of diversifiable and non-diversifiable risks. The diversifiable risk consists of risks the investor can avoid by diversifying their portfolio. ...
... Corporate valuation plays a critical role in essential business activities, such as mergers and acquisitions (M&A), initial public offerings (IPOs), and fundraising efforts (Damodaran, 2006). Accurate valuations are crucial for investors and managers to make informed decisions about investments, acquisitions, and divestitures (Fernández, 2007). However, traditional valuation methods such as the EBITDA Multiple have been criticized for not fully accounting for the complexity of modern business transactions (T. ...
... This case study serves to demonstrate the real-world applicability and effectiveness of the proposed method. Moreover, this paper will review the existing literature on corporate valuation and EBITDA Multiple, including the works of T. Copeland et al. (2000), Fernández (2007), and Koller et al. (2010), to provide a comprehensive understanding of the current state of research in this area. The paper will also explore the potential applications of the Adjusted EBITDA Multiple in various industries and contexts, as well as its limitations and areas for improvement. ...
This study analyzes the limitations of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) Multiple from the perspective of the going concern principle. A new Adjusted EBITDA Multiple that complements the limitations of the EBITDA Multiple is generated and applied to real-world cases for comparison. EBITDA Multiple is used to assess if the target company is undervalued or overvalued; adjusted EBITDA Multiple is used to determine the time taken to recover the total acquisition cost of a company in an M&A transaction. Samsung Electronics, South Korea’s leading tech firm, is used as a case study to analyze financial information between 2017 and 2021. The result varied with the M&A decisions. Investment decisions in M&A are made considering the assets (debt + capital) to be assumed with the acquisition and additional investment costs for the target’s sustainable management. We propose a new valuation method for recovering M&A investment costs, considering the long-term sustainable growth of the acquired company.
... According to Fernández et al. [2002], there are six approaches to measure the value created for a company where two are among the most commonly used approaches: value creation and discounted cash flows [Fernández et al., 2002, Eikelmann, 2020. The former relies on calculating the value created for the company's shareholders. ...
... According to Fernández et al. [2002], there are six approaches to measure the value created for a company where two are among the most commonly used approaches: value creation and discounted cash flows [Fernández et al., 2002, Eikelmann, 2020. The former relies on calculating the value created for the company's shareholders. ...
This thesis focuses on the development of a mathematical model and optimization algorithms for the design of a supply chain integrating financial dimensions. We propose a capacitated, multi-period, single-echelon, single-product model. The objective function to be maximized is the firm's value, represented by its Adjusted Present Value (APV). The decision binary variables are related to the location of logistics facilities; the continuous variables concern product flows and debt planning. The mathematical model is first evaluated by solving a set of generated instances using a state-of-the-art solver. We propose a sequential approach, consisting in optimizing the logistic variables first, then the financial variables. Then, we propose an optimization procedure based on the Large Neighborhood Search (LNS) metaheuristic to solve larger instances. Finally, consider the logistic and financial dimensions as two independent objectives. The multi-directional local search (MDLS) is employed to solve the bi-objective model by embedding the LNS into that framework. Extensive numerical experiments assess the relevance of our model and compare the performance of our algorithms to those of the solver.
... A pesar de que se ha publicado un número de trabajos en los que se pretende contrastar la hipótesis de que el EVA es superior a otras medidas tradicionales a la hora de explicar el valor creado para los accionistas, no se ha llegado a un consenso sobre ello (Iñiguez y Poveda, 2001). En particular, frente a publicaciones de la propia consultora Stern Stewart o vinculadas de alguna forma como las de sus socios (O'Byrne, 1997), han aparecido trabajos como los de Biddle, Bowen y Wallace (1997), Kramer y Pushner (1997) o Fernández (2002), que encuentran que distintas medidas contables como el beneficio ofrecen una correlación empírica mayor con el rendimiento bursátil que el propio EVA. ...
... O la cantidad que debe reinvertir la empresa para mantener la capacidad productiva, que no coincide necesariamente ni con la amortización contable (utilizada en el EVA y el EP) ni con la definición de depreciación del Boston Consulting Group para el CVA. En el caso de esta última al menos, como señala Fernández (2002), evita la discrecionalidad de los directivos sobre las amortizaciones contables, susceptibles de ser utilizadas para mejorar los indicadores que sirven para su propia evaluación, cuando estos se basan en los valores contables. ...
El presente trabajo aborda, con un enfoque económico, el análisis de la medición
de la creación de riqueza en la empresa con el fin de clarificar las diferentes
aportaciones que al tema se realizan tanto desde el ámbito académico como profesional.
Para ello, se realiza una revisión del propio concepto desde la Economía y se
analiza buena parte de los indicadores más difundidos en el ámbito profesional y
en la literatura. Se realiza asimismo una propuesta teórica de medición de la riqueza
creada en la empresa en un periodo de tiempo, que se concibe para reflejar aquellos
aspectos relevantes económicamente para los propietarios de la empresa y que
son omitidos por algunas medidas ampliamente difundidas.
... Financial theorists around the world are in the pursuit of a decisive measures of performance that acts as a benchmark that clearly indicates the true value created by a company to its shareholders. In this light, many theorists of financial management have opined that popular value-added measure like Market Value Added (MVA) along with Stock returns act as proxies for Shareholder value created by companies (Shotter, Dennis, Brummer and Boshoff (1998), Fernandez, 2002, Fiordelisi & Molyneux, 2004, Vijayakumar, 2008, Munteanu & Brezeanu, 2012, Hall, 2016). ...
... The table 2 shows the results of relative information content tests conducted by using panel data regression models (6 to 10) developed based on the Easton and Harris (1991) model. Examining the parameters like F-statistics and R-squared values of the models along with the coefficients, t-statistics at both level (undifferenced) and change (differenced) positions of the independent variables, it can be inferred that the models (7), (8), (9) and (10) ...
The main aim of corporate finance is creation of shareholder value. The term shareholder value creation has become quite popular in the recent times attracting much debate and attention from theorists of corporate finance all over the world. Studies were conducted to determine the measures that reflect shareholder value. Initially, many financial theorists explored the adaptability of conventional accounting-based performance measures like EPS, ROA, ROE etc. for measuring shareholder value. Later, as the concept of Value based Management evolved, a new value-based measure known as Economic Value Added (EVA) came into limelight which was presumed to be the most relevant and significant measure in revealing the true value of firms. Many studies were conducted examining the superiority of EVA over traditional accounting-based measures of performance in explaining shareholder value as indicated by Stock returns, MVA etc. Nevertheless, there were not conclusive evidence that established the best measure of shareholder value. This paper explores the validity of EVA and traditional accounting-based performance measures like ROA, ROE, EPS, PAT in explaining Stock Returns and MVA from the context of Indian capital markets. A sample of 55 manufacturing companies belonging to CNX NIFTY 100 were analyzed over a period of ten years from 2008-09 to 2018-19. Panel data regression models were developed to investigate the value relevance of EVA and traditional performance measures on shareholder value. All the performance measures at levels and change positions together were significantly value relevant in explaining the changes in shareholder value in the context of Indian
... WACC from the company side is useful as the valuation component and indicates the return rate for assessing future company projects. Therefore, WACC is an integral part of the discount rate for the Discounted Cash Flow method (DCF) and other valuation models [10][11][12]. ...
... Listed companies do not seek to optimize the capital structure by employing a leverage mechanism but seek the most available financing sources at the moment with the lowest cost. Fernandez underlines that the capital market costs are determined by the capital market liquidity, efficiency, and risk investors [12]. However, a company's capital structure expressed by WACC level could be a cumulative result of past attempts such as issuing shares or could be affected by temporary fluctuations in equity capital cost [41]. ...
This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.
... Para Reider y Heyler (2003), el dinero es la sangre vital de un negocio, con éste el negocio puede crecer y prosperar, sin éste, el negocio morirá. Para Fernández (2002), las empresas son directamente generadoras de dinero. Por lo que, si la variable clave de un negocio es el dinero, para realizar una buena planeación financiera es indispensable estudiar y entender sus tres propiedades esenciales, es decir, la de ser un medio de intercambio, una unidad de medida y un instrumento de reserva de valor. ...
Este artículo resume y evalúa la información obtenida de un cuestionario
aplicado a empresas pequeñas radicadas en la ciudad de Morelia, México.
El objetivo de este estudio fue el de analizar el conocimiento y uso de la planeación
formal y financiera por parte de la administración de las empresas.
Los datos se recabaron a través de un cuestionario de 23 preguntas aplicado
a responsables administrativos de 139 empresas. En el estudio se trataron
temas de conocimiento general sobre negocio, dinero, contabilidad, valor y
planeación, y sobre el uso de la planeación formal y financiera en las empresas.
Los resultados muestran que, por ejemplo, el 56 por ciento de las empresas
realizan planeación formal y el 62 por ciento planeación financiera.
Con el análisis de los datos, se observa que hay una relación significativa
entre el conocimiento general de los temas tratados, en su conjunto, y el uso
de la planeación formal y financiera en las empresas. Por lo que, se entiende,
el conocimiento general y en conjunto de los temas tratados lleva al uso de
la planeación formal y financiera.
... The study revealed that capital structure is adversely related to profitability. (Fernandez, 2002) proposed a concept of creating shareholder value that enhances shareholder wealth, considered one of the major measures of shareholder value. The present research tries to fill the gap by examining how capital structure affects shareholder value in the long and short run by applying Panel ARDL analysis. ...
This study examines the effect of capital structure on the shareholders’ value in Indian pharmaceutical industry collecting data over a period from 2001 to 2020. Further, the study also investigates the long-run and short-run relationship between capital structure and shareholder value. This study employs pooled, fixed, random effect regression models and panel autoregressive distributed lag analysis. The shareholder value of Indian firms is measured by earnings per share (EPS) and market value added (MVA) while the debt-equity ratio, interest coverage ratio, and total liabilities to total assets are the proxy variables for capital structure. The study reveals that capital structure influences shareholder value significantly. The findings also explored the existence of a long-run relationship between capital structure and shareholder value.
... Firm value creation is a function of the investment capital required to realize the project, the volume of a stream of expected cash flows it generates, its opportunity cost (discounting factor), and the length of period the product enjoys the required market demand, among other things (Fernández, Fernández, Fernandez, & López, 2002;Narayanan & Nanda, 2006). The probability of creating future values is also correlated with profitability, industry patterns, firm size, ownership structure, and time (Naceur & Goaied, 2002). ...
The study aimed to identify firm-level determinants of capital structure decisions of Grade I construction companies in Ethiopia. We analyzed audited financial statements of 5 of the 24 Grade I construction companies that met the selection criteria and showed their willingness to participate in the study. The study period covered from 2007 to 2012. We employed a fixed effect panel regression model to analyze study results. Fixed effect is a preferred model when one cannot consider the observations to be random draws of a large population. Of the nine firm-level antecedent variables, only non-debt tax shield, firm age, and earnings volatility explained the financing decisions of Grade I construction companies. The three variables explained 54% of the variance in the outcome variable during the study period. The results also signpost these variables can predict 41% of the future variation in capital structure decisions. Further, though both trade-off and pecking order theories explain the capital structure decision of the firms under study, the trade-off theory appears to be more competent. Moreover, we found SUR Construction PLC to be less leveraged than the other four Grade I construction companies. We, thus, recommend SUR Construction PLC make use of its underutilized debt capacity to finance profitable projects and achieve better growth. Finally, given the limited participation by Grade I construction companies, the conclusions of the study need to be carefully considered.
... Firm value creation is a function of the investment capital required to realize the project, the volume of a stream of expected cash flows it generates, its opportunity cost (discounting factor), and the length of period the product enjoys the required market demand, among other things (Fernández, Fernández, Fernandez, & López, 2002;Narayanan & Nanda, 2006). The probability of creating future values is also correlated with profitability, industry patterns, firm size, ownership structure, and time (Naceur & Goaied, 2002). ...
The study aimed to identify firm-level determinants of capital structure decisions of Grade I construction companies in Ethiopia. We analyzed audited financial statements of 5 of the 24 Grade I construction companies that met the selection criteria and showed their willingness to participate in the study. The study period covered from 2007 to 2012. We employed a fixed effect panel regression model to analyze study results. Fixed effect is a preferred model when one cannot consider the observations to be random draws of a large population. Of the nine firm-level antecedent variables, only non-debt tax shield, firm age, and earnings volatility explained the financing decisions of Grade I construction companies. The three variables explained 54% of the variance in the outcome variable during the study period. The results also signpost these variables can predict 41% of the future variation in capital structure decisions. Further, though both trade-off and pecking order theories explain the capital structure decision of the firms under study, the trade-off theory appears to be more competent. Moreover, we found SUR Construction PLC to be less leveraged than the other four Grade I construction companies. We, thus, recommend SUR Construction PLC make use of its underutilized debt capacity to finance profitable projects and achieve better growth. Finally, given the limited participation by Grade I construction companies, the conclusions of the study need to be carefully considered.
... Firm value creation is a function of the investment capital required to realize the project, the volume of a stream of expected cash flows it generates, its opportunity cost (discounting factor), and the length of period the product enjoys the required market demand, among other things (Fernández, Fernández, Fernandez, & López, 2002;Narayanan & Nanda, 2006). The probability of creating future values is also correlated with profitability, industry patterns, firm size, ownership structure, and time (Naceur & Goaied, 2002). ...
The study aimed to identify firm-level determinants of capital structure decisions of Grade I construction companies in Ethiopia. We analyzed audited financial statements of 5 of the 24 Grade I construction companies that met the selection criteria and showed their willingness to participate in the study. The study period covered from 2007 to 2012. We employed a fixed effect panel regression model to analyze study results. Fixed effect is a preferred model when one cannot consider the observations to be random draws of a large population. Of the nine firm-level antecedent variables, only non-debt tax shield, firm age, and earnings volatility explained the financing decisions of Grade I construction companies. The three variables explained 54% of the variance in the outcome variable during the study period. The results also signpost these variables can predict 41% of the future variation in capital structure decisions. Further, though both trade-off and pecking order theories explain the capital structure decision of the firms under study, the trade-off theory appears to be more competent. Moreover, we found SUR Construction PLC to be less leveraged than the other four Grade I construction companies. We, thus, recommend SUR Construction PLC make use of its underutilized debt capacity to finance profitable projects and achieve better growth. Finally, given the limited participation by Grade I construction companies, the conclusions of the study need to be carefully considered.
... The process of valuing a firm and its business units helps to discover sources of economic value generation and destruction inside the organization, which is significant not just in acquisitions and mergers. (Fernandez, 2002). ...
Purpose - Company value is a crucial issue for everyone operating in financial markets. Both firm managers and investors should calculate the value of a firm, and there are many methods available to do so. Calculating valuation methods is challenging due to the multiple parameters and stages that are involved. Due to these reasons, it's possible for managers, owners, investors, and other stakeholders to estimate a company's value inaccurately or with difficulty. The main objective of this essay is to demonstrate how to evaluate a company's value using the NARX model as an alternative to other models. Methodology – It is estimated that the firm value using an artificial neural network nonlinear external input autoregressive network model for 50 companies operating in the consumer products and industrial products and services sectors in the Euro Stoxx 50 index. The dataset covers the period from 2000 to 2021, and 20 financial ratios were included as input to the model, with FCFF as the output. Findings- The NARX model with a 20-6-6-1 or 20-10-10-1 network structure provided the best value for both R and MSE at two-time delays. However, the 20-12-12-1 network structure of the NARX model with a time delay of three has a lower error rate after training and the best R value. The model's prediction success rate is 90.82% using the 20-12-12-1 network structure with a time delay of three. Conclusion- As a result, this model can be used by investors and business managers to value a company. By using this method, businesses may gain access to more precise and unbiased appraisals that can guide resource allocation and strategic decision-making. By including macroeconomic factors that have an impact on the sector and employing a longer time frame, the study could be improved. Keywords: Company value, company valuation, cash flow to firm, artificial neural networks, nonlinear external input autoregressive network JEL Codes: C45, C80, G12
... Bank efficiency has positive and significant effect on shareholder value creation of Egyptian banks, which means that higher level of profit efficiency enhances Egyptian banks' shareholder value given that it provides signals to shareholders that they will receive higher level of dividends. Such result is consistent with previous studies including [ [38]. When Ln (Bank Efficiency) increases by 1%, LMVA will increase by 3.3655% holding other variables constant at 1% level of significance revealing that bank efficiency has an impact on MVA. ...
... Thus, traditional accounting measures, such as earnings per share (EPS), return on investment (ROI), return on capital employed (ROCE), and return on equity (ROE), are unsuitable for measuring shareholder value (Chen & Dodd, 1997;Venugopal et al., 2019). Against this background, many studies have identified indicators such as economic value added (EVA), market value added (MVA), and created shareholder value (CSV) (e.g., Byrne & Stewart, 1992;Fernández, 2002;Petwson et al., 1996). However, other studies deal critically with these instruments (e.g., Biddle et al., 1997). ...
The concept of shareholder value has been the subject of heated debate for 40 years. Surprisingly, the literature seems to overlook the fact that shareholder orientation by management is something completely different from the implementation of this idea in the well-known shareholder value concept, which aims to measure the contribution of management to shareholder welfare. Using a market-oriented framework, this study shows that the fundamental orientation of shareholders' subjective preferences is supported by a property rights perspective inspired by the ideas of the Austrian School of Economics. In contrast, Alfred Rappaport's shareholder value concept is based on neoclassical equilibrium thinking and, therefore, counteracts the real, imperfect environment of the corporation's decision-makers, especially their subjective values. This results from individual preferences and decision parameters, as well as incomplete and asymmetric information. Thus, it ignores the reality of managerial decision-making. Based on these considerations, we argue that the advocacy of a general managerial orientation toward shareholders' objectives does not logically imply full support for the implementation of the idea under Rappaport's concept. In doing so, this essay contributes to a more differentiated discussion on valuation, corporate governance, and managerial decisions.
... One of the effective tools for solving the set research tasks is the model of Ottoson and Weissenrieder (1997), as well as its modifications, which involve the use of indicators of CVA, ICVA or their modified versions (MCVA, MCVA Index, Cumulative MCVA Index). This is recognized throughout the world as the most theoretically grounded method of estimating the market value of an operating enterprise: when estimating the value of large and medium-sized enterprises, this method is used in 80-90% of cases (Fernandez, 2002). ...
The purpose of the paper is to assess the war impact on the market value of the industrial complex enterprises of Ukraine. This is an important task for determining the investment needs to restore the Ukrainian economy, substantiating the reparations for Russia’s aggression against Ukraine, which should include the damage caused after the unleashing of a full-scale war from 24.02.2022 , and losses in the early phases of military aggression (after 22.02.2014).The author’s method of assessing the market value is based on the CVA concept. The war impact on the enterprises market value should be manifested through changes in the effects of exploitation and financing liabilities, which show a differentiated effect from changes in the internal and external business environment of enterprises in wartime. Estimates should be based on the possibility of both negative and positive effects. The main direction of the negative influence is the financing effect, which is due to the action of the external business environment factor. The Kane-Essian argument should be considered in the estimates by calculating normalized effect sizes.The normalized cumulative war impact equaled 165.1 billion dollars, which corresponds to 44.4% of the total market value of industrial enterprises of Ukraine, estimated for the period 2014–2022. About 14.4% of the total war impact on the market value of Ukraine’s industrial enterprises is attributed to the financing effect. Loss assessments can be used to evaluate the investment needs to restore destroyed and damaged business property. To determine the amount of compensation for damage caused by the war, the market value of an enterprise according to the CVA method can be used.
... The final stage is calculating the value of Media. In this stage, there are a lot of models: The acritical of Fernandez P presents eight different methods of discounted cash flow valuation and discusses the pros and cons of each method and this paragraph selects three methods to analyze Midea [8]. The first is golden growth model, the next is general two stage model, the last is H model. Based on the three model, Midea's value is 28.363, 30.655 and 56.65 respectively. ...
... They suggest that peer group valuations imply growth opportunities for companies and that an increase in peer group valuations will encourage companies to expand their investments [1]. According to Fernández et al., the corporate valuation methods could be generally divided into four dimensions: balance sheet-based methods, income statement-based methods, goodwill based methods and cash flow discounting-based methods [2][3][4][5][6]. ...
Lululemon's unique and innovative brand culture and concept, combined with the pursuit of healthy living and the globalization of sport, has led to the company's global growth. Lululemon’s creative fabric technology and design also enhanced its competitive edge. From the perspective of politics, economy, society and technology, due to the rapid expansion and emerging yoga culture and heathy life concepts, it might be overvalued according to its leading and fast-growing status in the athletic clothing market. In this paper, P/E ratio, forward P/E ratio, EV/EBITDA ratio and discounted cash flow model are adopted to value the company. The results of valuation ratios of Lululemon are higher than other competitors, and the data generated from the discounted cash flow model is lower than its current market value, indicating that the price of Lululemon is indeed overestimated. This paper would provide the investors an overview of Lululemon’s brand history, market position and basic valuation statistics.
... 16 These expected rates of return are also called required returns: r o t required return on operating assets (operating COC) r l t required return on non-operating assets (non-operating COC) r d t required return on debt (debt COC) r e t required return on equity (equity COC) 17 Note that r o t is a pre-tax WACC. Applying the time-value-of-money principle (i.e., Equation (74)) to F o t and r o t , one finds the economic value of the operating assets (see Ruback 1994Ruback , 2002Fernández 2002;Tham and Vélez-Pareja 2004): 18 Residual income, or excess profit, is traditionally defined as RI t = I t − r t C t−1 (see, e.g., Edwards and Bell 1961;Bodenhorn 1964;Peasnell 1981Peasnell , 1982Brief and Peasnell 1996;Ohlson 1989Ohlson , 1995Ohlson , 2003Magni 2009b). This definition does not comply with value additivity, a basic tenet in finance (see, e.g., Varian 1987) and a necessary property for reliable financial analysis. ...
This paper illustrates an innovative approach to financial modeling of engineering decision-making and industrial projects. The approach is a minimal one, grounded as it is on three notions, two laws, and one matrix that combines them, called Split-Screen Matrix (SSM). This split-screen approach consists in linking the accounting and financial input data and systematizes them into the SSM, whose columns report the pro forma book values of capital (balance sheets), the corresponding income components (income statements), and the associated cash flows (cash-flow statements) while the rows show the project’s dynamical evolution. The SSMs are then linked via a continuous split-screen strip. To appraise the project, we use a pair of SSMs, namely, the project matrix and the benchmark Matrix (with the related strips), the latter containing the alternative amount invested and the associated foregone profit of a financial portfolio replicating the project’s cash flows. Using differences between the corresponding elements of the two strips, the economic profitability of the project can be easily measured, in both absolute terms (e.g., net present value, market value added, residual income) and relative terms (e.g., average return on assets, cash-flow return on capital). The accounting-and-finance engineering system (AFES) obtained with the split-screen approach is particularly helpful when using spreadsheet modeling because it does not require (knowledge and) use of financial spreadsheet functions. The application of this approach on spreadsheet modeling is essentially based on the continuous split-screen strip, here described, and is illustrated in a following paper (Baschieri and Magni 2023, “The Split-Screen Approach for Project Apraisal (Part II: Spreadsheet Modeling)”).
... (2004) study Canadian firms. Fernandez (2002) investigates the use by Spanish firms. Sandoval (2001) uses data from firms in Chile, while West and Worthington (2004) base their conclusions on Australian firms. ...
A firm’s total assets include non-operating and operating components. In the conventional value-based management and economic value-added models, the value created comes from the firm’s operating assets; therefore, the weighted average cost of capital in the models should also be based on the operating assets instead of the total assets. A method to find this cost of capital is presented. This modification also has implications for other areas in the study of financial management, such as capital budgeting and capital structure.
... A review of 11 current reference books in the discipline of finance confirms that most of the analysis of financial performance of a company is now predominantly based on the concept of value creation which is measured through ratios of cash flow, economic profit, return on investment, cost of capital, value addition and present value. (Rappaport, 1998;Fabozzi & Grant, 2000;Helfert, 2001;Venanzi, 2011;Vernimmen et al., 2014;Hall 2018;Scarlett, 2001;Fernandez, 2002;Das & Pramanik, 2009;Sehrawat, 2009 andHoller, 2009). They have also articulated that Substantial pressure to maximise shareholder's wealth compels firms to adopt value analysis as a tool for financial performance measurement. ...
... On the other hand, Bukvič (2016) posited that researchers have not yet fully developed the factors that influence sufficiently the shareholders' value creation. Kleiman (1999) and Fernandez (2002) noted the usefulness of EVA and CVA. Their research reported that EVA had an impact in terms of higher shareholder return, and sale of assets increases significantly after introduction of the EVA. ...
Value-Based Management (VBM) provides an objective-based framework for a company’s performance measurement system. It is perceived as a valuable approach by managers to support the designing and implementation of value-creating strategies.
Therefore, the purpose of this chapter is to shed light on the theoretical retrospective and prospective of VBM in terms of concepts, evolution, the shortcoming of traditional accounting-based measures, implementation model, value metrics, and evaluation of it. In a comprehensive literature review, the benefits which are claimed in the literature through the implementation of VBM and its measures as well as evidence of drawbacks of the VBM approach, are also discussed. Indian companies practice widely Economic Value Added (EVA), but there is the least evidence regarding adoption rates of VBM in the absence of adequate survey studies. Examples of a few Indian companies’ adoptions of VBM and value-creation efforts are highlighted in this chapter. The chapter concludes that there is considerable scope and urgency for implementing VBM but not without hurdles in India. Direction for future research is also provided.
Keywords: Value Based Management, Evolution, Value Metrics, Shareholder Value, Economic Value Added, Accounting -Based Measures, Performance Measures, Pillars, Implementation, Benefits, Drawbacks, Indian Practices
... According to Atiyet (2012), value creation and cash flows are generally seen as the most important performance measurements for companies. Fernández (2002) stated that shareholder value is created when shareholder returns are greater than the required returns to equity. Companies face additional risks during volatile economic periods, such as the COVID-19 pandemic, because of the uncertainty around the stock markets and future sales of the company (Alam et al., 2020). ...
The measurement of a stocks return over a time period is analysed for several reasons. The most obvious and most important one is to inform investors’ expectations regarding future earnings potential. Therefore, the study made a comparison using the financial performance of single-listed shares versus dual-listed shares that trade primarily on the South African stock market (JSE). The time-period for the comparison of financial performance of single- and dual-listed shares was from 2005 to 2020 to confirm or refute the general perception surrounding superior returns of dual-listed companies as opposed to single-listed companies. Utilising financial ratios can be imperative when making informed judgments about investment portfolios. Seven of the most important financial ratios were used to measure the performance of company shares within nine specified industry sectors in South Africa. These included the earnings per share ratio (EPS), price-earnings ratio (P/E), market to book value ratio (M/B), current ratio (CR), debt to equity ratio (DER), and the return on equity ratio (ROE). The nine identified industries included the transport, consumer staples, printing, pharmaceutical, mining and manufacturing, technology, luxury goods and services, financial services, and real estate industries. The results indicate that the dual-listed companies do indeed outperform single-listed companies on the JSE for the majority of the financial ratios over the specified period. This study contributes to portfolio management by informing equity allocation in the short-term and long-term.
... No matter the size or scope of the business or the industry in which it operates, a company's objective is always to make a prot. 2 In the neoclassical theory of the rm, the dominant paradigm is that rms maximize the economic prot (also termed pure prot), by subtracting the opportunity cost of equity capital (i.e., prot that could be made by investing equity in alternative activities) from the net income. This amounts to calculate company's economic prot (or residual income) [19,58,56,43,32] by subtracting the total opportunity cost of equity from net income, i.e., E = Π − r * K, where E denotes the economic prot, Π the net prot, K the equity capital contributed by the shareholders and r * is the required protability, i.e., the return on riskfree alternative investments, also termed as cost of equity, which is equal to the return of long-term Treasury bonds (considered as risk-free asset) plus the company's risk premium ( [26], p. 7). 3 ...
In contrast to the new theories of the firm, we return to the shareholder value model. By using optimization theory, we examine how shareholders' differentiated behavior influence corporate behavior. Strategic shareholders —characterized by thinking in terms of control ratio— maximize their residual income, which encourages firms to maximize their economic profit, i.e., their EVA^{\circledR}, and leads firms to produce more, at a lower price but with a larger quantity of inputs. Financial shareholders —characterized by thinking in terms of portfolio— maximize the profitability of their portfolio, which encourages firms to maximize their profitability, i.e., their ROE, and it leads firms to produce less, at a higher price but with fewer inputs. Inactive shareholders —characterized by maintaining a fixed amount of equity in each company— maximize their residual inactive income, but this encourages firms to maximize their profitability with the same effects on quantities, prices and inputs. Multiplicity of shareholding may lead to conflicts between shareholders and even between managers, which can generate an erratic behavior on the part of the company. We conclude on a domination of the strategic over the financial. Moreover, maximizing profitability for a controlling shareholder is sub-optimal, and vice-versa.
... One more limitation of this work is trying to compare the data of a quantitative investigation with a qualitative one, since the way in which the data is obtained, analyzed, and interpreted is very different. Although they are not incompatible and are complementary, there is a marked difference in the methods, dealing with the same topic [33], the triangulation of the results and the analyzes are not without a degree of subjectivity on the part of the researchers.. ...
Background
Public policies related to drug use have been formulated based on the guidelines given by international organizations that have classified them based on more socio-legal motivations, lacking a scientific basis.
Methods
To achieve the hierarchy of harm associated with the consumption of psychoactive drugs through a consensus of experts, complemented with the social representations that communities have in this regard. Principles of Multcriteria Decision Analysis (MCDA) were used and through the Delphi method, 15 expert scientists in psychoactive drugs were consulted, who weighted on a scale the construction of consensus on damages related to 15 psychoactive drugs at the individual level and third parties. In addition, focus groups and individual interviews were conducted with social actors to inquire about their perceptions regarding the harm associated with drug use, both in consumers and in others. Finally, Bayesian elicitation was applied to the qualitative information of the substances, where medians and 95% credibility intervals were estimated.
Results
The consensus showed that smokeable cocaine (basuco), heroin, alcohol and cocaine were, in order, the most harmful substances for individual users, with medians of 40.3; CRI95% (39.3–41.3); 40; CRI95% (38.9–40.9), 39.7; CRI95% (38.9–40.5) and 39; CRI95% (38.4–39.7), respectively, while cocaine, alcohol and basuco were the most harmful to another 43.4; CRI95% (42.8–44), 42.7; CRI95% (42.2–43.3) and 42.7; CRI95% (42.3–43.1), respectively. For their part, the community actors considered alcohol to be the most harmful substance both for the individual who consumes it and for third parties, followed by cocaine and marijuana.
Conclusion
The disagreement in the management given to drugs by public policies regarding the problem of both legal and illegal drug use is corroborated, in relation to the international discussion the variables that had more weight in the context Colombia were those related to violence, displacement and crime associated with the production and trafficking of substances.
... [63][64][65][66][67][68]. However, strictly speaking, the ROI measures the project return, the ROE measures the shareholder return, and the two coincide only if the project is unlevered (no debt) or if the interest rate on debt is equal to the required return on Value Creation and Investment Projects: An Application of Fuzzy Sensitivity Analysis 1691 debt (e.g., see Ref. 69). We then prefer to use the ROE, which is a speci¯c measure of the economic value created for the sponsoring¯rms, and, in particular, the AIRR approach, which takes the book-value-weighted mean of all the project's ROEs. ...
This paper presents a methodology which blends sensitivity analysis (SA) and fuzzy arithmetic for managing uncertainty in project financing transactions. Specifically, we adopt the perspective of the equityholders and use the average return on equity (ROE) to measure shareholder value creation and, in particular, the financial efficiency of the equity investment. We cope with uncertainty via global and local SA and fuzzy arithmetic; we use the fuzzy version of the well-known (global) [Formula: see text] indicator and we introduce the fuzzy versions of two (local) importance measures, the differential importance measures (DIM). We then apply them to the pro forma financial statements drawn up by the analyst for measuring and ranking the impact of the key accounting parameters on the resulting values and we show how the uncertain accounting and financial magnitudes of the project company affect the financial efficiency. Among the advantages of this analysis, aimed to enhance the managerial insights generated by the financial model and to lead to appropriate managerial actions, we focus on the attractiveness of fuzzy calculus and possibility theory to represent and compute all relevant financial data that appear in project financing and budgeting, where available information is characterized by incompleteness or nonstatistical uncertainty. In this context, fuzzy computing and appropriate SA techniques, based on application of the extension principle, allow complete investigation of the project characteristics.
... performance boursière Stern et al. (1996) et Fernandez (2002) considèrent que les indicateurs boursiers de performance (désormais notés IBP) vont au-delà des notions de profit, de rentabilité et de performance. Ils sont de ce fait susceptibles de mieux expliquer les rendements boursiers que les simples indicateurs de comptables de performance. ...
... Required return on j, j = h, k, e, d r j+l t WACC (value-weighted mean of r j and r l ), j = h, k, e, d r and its overall consistency with the net present value (NPV) has been precisely clarified by many scholars (e.g., Peasnell 1981Peasnell , 1982aPeccati 1992;Stewart 1991;Ohlson 1995;Martin and Petty 2000;Hartman 2000;Lundholm and O'Keefe 2001;Fernández 2002;Martin et al. 2003;Magni 2009). ...
We show that the standard notion of residual income (RI) does not fulfill additive coherence. This gives rise to ambiguities and inconsistencies. The pitfall resides in the capital charge, which blends a non-market value with a market rate. We solve the problem by using a capital charge based on economic return, obtained as the product of a market value and a market rate. The resultant economic RI enjoys additivity. The economic RI is naturally associated to the average Return on Investment (ratio of total income to total invested capital). Subtracting the respective cost of capital (ratio of total economic return to total invested capital) the marginal economic efficiency of the capital is correctly captured. Economic RI guarantees consistency among the various sets of incomes, book values, economic values, accounting rates, and costs of capital, under an investment perspective as well as a financing one, both at a period level and at an aggregate level, either assuming time-invariant or time-varying costs of capital. Therefore, the economic RI offers a coherent tool for the assessment of a project’s or firm’s economic efficiency.
... The American Marketing Association defined a brand as the term, name, symbol, design, and other such features that define a seller's goods and services as different from those offered by others. Brands are identified as objects of value, whereby the valuation of a brand is usually performed on a strictly financial basisin the same way as an individual company (see, for example, Damodaran, 2007;Fernandez, 2002). Brand equity refers to the total measure of a brand's worth which can be validated by determining the effectiveness of branding components. ...
Green innovation has received growing attention from the business sector in recent years, yet few studies have examined the internal mechanisms and contingent conditions that link green innovation to a firm's brand value. By integrating the brand value literature with the resource-based view (RBV), our research investigates the moderating roles of marketing capability and R&D intensity in the influence of green innovation strategy (GIS) on brand value. The System-GMM method was used to estimate a dynamic panel data model based on firm-level panel data from 164 listed companies in the global automotive industry between 2011 and 2018. The results confirmed that GIS has a positive impact on brand value, showing that automotive firms can use GIS to improve their brand value. Furthermore, the contingent effects of a firm's marketing capability and R&D intensity were supported. Marketing capability and R&D intensity positively moderate the relationship between GIS and brand value. The effect of GIS on brand value is more significant for firms with high R&D intensity and high marketing capability investment compared to those firms with low intensity and low investment. This study provides crucial theoretical and managerial implications for managers.
... Utilitarian rationality applied to finance, or illicit financial activities specifically, requires that the net present value (NPV) of an activity be positive (cf. Damodaran, 2012;Fernández, 2002;Fisher, 1930). A financial activity is deemed rational if the present value of the expected benefits is at least equal to (or preferably larger than) the present value of the expected outlay. ...
Financial misconduct has come into the spotlight in recent years, causing market regulators to increase the reach and severity of interventions. We show that at times the economic benefits of illicit financial activity outweigh the costs of litigation. We illustrate our argument with data from the US Securities and Exchanges Commission and a case of investment misconduct. From the neoclassical economic paradigm, which follows utilitarian thinking, it is rational to engage in misconduct. Still, the majority of professionals refrain from misconduct, foregoing economic rewards. We suggest financial activity could be reimagined taking into account intrinsic and prosocial motivations. A virtue ethics framework could also be applied, linking financial behavior to the quest for moral excellence and shared flourishing. By going beyond utilitarian thinking and considering alternative models, we offer a fuller account of financial behavior and a better perspective from which to design deterrence methods.
... • Penman (2001Penman ( , 2003 maintains that "no one knows what the REP is." • Fernandez (2002• Fernandez ( , 2004 claims that "different investors have different REPs" and that "there is not a premium for the market as a whole" • Black et al. (2000) calculate the EEP as an average of surveys and HEP. EEP > HEP 2 9.0% 9.0% 9.0% ...
... • Penman (2001Penman ( , 2003 maintains that "no one knows what the REP is." • Fernandez (2002• Fernandez ( , 2004 claims that "different investors have different REPs" and that "there is not a premium for the market as a whole" • Black et al. (2000) calculate the EEP as an average of surveys and HEP. EEP > HEP 2 9.0% 9.0% 9.0% ...
... (Ogier et al., 2004) Damodaran (2006 claims that costs of capital are the combined cost of financing that reflect the costs of debt and equity and their relative weights in the financial structure. According to Fernandez (2002) costs of capital are determined by the capital market and they are closely related to the degree of risk investors. Costs of capital are often considered to be the minimum yield or the minimum expected rate of return that an investor would accept from a particular investment. ...
... Even though that is how valuation multiples emerged as a very practical valuation alternative (Damodaran, 2013), Greenberg et al. (1986) compared earnings against CF and determined that earnings are better estimators of CF than the CF itself, although Sulistiawan and Rudiawarni (2019) clarified that earnings should be informative, and if they lose that characteristic, then valuation should be conducted through other means. Even though Imam et al. (2013) found that the two main techniques used by Dow Jones Euro Stoxx 50 Index analysts were the DCF and multiples based on earnings, Festel et al. (2013) explained that the CF is used when there is detailed information available (Fernández, 2002). In spite of that, Damodaran (2005) found through 550 reports from investment banks that multiples were used ten times more as a valuation method over the DCF, even when having information available. ...
... Even though that is how valuation multiples emerged as a very practical valuation alternative (Damodaran, 2013), Greenberg et al. (1986) compared earnings against CF and determined that earnings are better estimators of CF than the CF itself, although Sulistiawan and Rudiawarni (2019) clarified that earnings should be informative, and if they lose that characteristic, then valuation should be conducted through other means. Even though Imam et al. (2013) found that the two main techniques used by Dow Jones Euro Stoxx 50 Index analysts were the DCF and multiples based on earnings, Festel et al. (2013) explained that the CF is used when there is detailed information available (Fernández, 2002). In spite of that, Damodaran (2005) found through 550 reports from investment banks that multiples were used ten times more as a valuation method over the DCF, even when having information available. ...
In this paper, the research first reviews the definition of some economic targets and the model used to help evaluate the stocks. Then, it continues to focus on quantitative analysis, which includes Du Pont analysis, Comparable Company Model, and Discounted Cash Flow Model. At the end of the analysis, the data will be summarized, and the valuations of the stocks can be calculated. The research objectives are concluded after evaluating all factors that influence these stocks. Then, the answers to the research questions will be revealed to the readers. Finally, the disadvantages and shortages of this research are also discussed.
Objective – This paper aims to examine the theoretical and practical aspects of the widely used discounted cash flow (DCF) valuation method. Methodology – The proposed method is probably the most widely used approach in the valuation of unlisted companies. It involves estimating the future cash flows that the company is expected to generate and discounting them to their present value using a discount rate. The study was conducted on Spanish olive oil companies between 2005 and 2020. Findings – Our results show that there are two values for valuing companies: static and dynamic values. Both values are calculated based on the sum of the updated cash value plus the remaining value. The static value provides only one value, while the dynamic value provides a range of values, resulting in a more accurate understanding of a company's value and a better comprehension of the risks associated with that value. Therefore, the company is considered a cash flow generator, and the value of the company is found by calculating the present value of these flows using an appropriate discount rate. Novelty – Despite this method being a powerful tool for evaluating companies, even in complex situations, the DCF method is subject to a significant assumption bias, and even slight changes in the underlying assumptions of the analysis can greatly alter the evaluation results. Type of Paper: Empirical JEL Classification: G12, G31, M21 Keywords: Cash flow; Unlisted companies; Valuation methods; Discounted Cash flow Reference to this paper should be made as follows: DRISSI, R. (2023). Empirical Analysis of Unlisted Companies' Valuation Using Discounted Cash Flow Methods, J. Fin. Bank. Review, 8(1), 73 – 84. https://doi.org/10.35609/jfbr.2023.8.1(4)
p>En la actualidad, la integración apunta a reducir la atomización del mercado al concentrar la liquidez y profundidad de cada uno de los actores que integran el Mercado Integrado Latinoamericano (MILA) en un solo lugar. Facilita la incorporación al mercado de capitales internacional, permitiendo el acceso a mayores fuentes de financiación diferentes a las tradicionales que ofrece la banca. Por esta razón se considera importante estudiar la relación entre la creación de valor y la volatilidad de las firmas que hacen parte del MILA durante el periodo comprendido entre 2007 y 2017. Para contrastar esta relación se utilizan diferentes modelos econométricos que permiten evidenciar una relación negativa y estadísticamente significativa entre la creación de valor para el accionista y la volatilidad. Esto implica que las compañías que generan más incertidumbre reflejada en una mayor volatilidad, medida en términos de los retornos diarios, presentan menor creación de valor para el accionista.</p
Subject. Based on the developed procedure for fuzzy valuation of shares of issuing companies, the article considers topical issues related to forecasting their investment potential in conditions of stock market dynamics. Objectives. The purpose is to assess the investment potential of issuing companies for various scenarios of their development. Methods. The study rests on methods of analysis of economic phenomena and processes, systems approach to reviewing the development of issuing companies, estimation and prediction of their economic activities. It applies the fuzzy logic theory and the efficiency theory, the method of analogies, statistical processing of factual material, the comparative and expert analysis. Results. The developed methodology includes the formation of scenarios for companies’ development based on their financial and economic projections in the form of fuzzy numbers. I constructed membership functions of the initial fuzzy financial and economic indicators. The paper provides projected fuzzy estimates of the value of shares of the issuing company and its investment potential for the selected fuzzy financial and economic indicator and forecast scenario. The methodology was tested on the case of model forecast scenarios for ExxonMobil development. Conclusions. The presented methodology enables a forecast assessment of investment potential based on the database of quotations and financial and economic indicators of issuing companies. The predictive assessment is made within the formed fuzzy forecast scenario of the company's evolution in accordance with trends in the development of internal and external risk factors.
The estimation of firm growth is increasingly relevant to providers of capital in periods of economic uncertainty. The current study employs univariate and multivariate analyses to assess the impact of real GDP and the dividend payout ratio on earnings growth of JSE-listed firms. The findings reveal that there is no relationship between these hypothesised predictors of earnings growth, despite contrasting results of previous studies. Through the inclusion of real GDP in models that are established in the research, the study contributes to the literature of macroeconomic variables as lead indicators of firms’ earnings growth potential. This research also extends prior research on the impact of dividend payout ratio on future earnings growth.
The article notes the essence of “business” and “company” as well as their aim for investment and decision-making purposes. It also defines the essence and objectives of business evaluation as well as importance of the valuation of the business for their confident activity. The need of standardization of evaluation process was mentioned. The aim of business valuation is mentioned considering targeted environment. The functions of business evaluation are considered and their brief description is given. The factors that need to be used when evaluating a business are listed. The characteristic of fair value of business was noted and the basic methods used for its estimation in world practice is considered according to their classification. The issue of intangible assets valuation today is very controversial, but as the same time the importance of intangible assets and their role in assessing the value of business grows every year, and it was considered in the article. The process of estimation of intangible assets in explained due to some characteristics according to the article and the procedure for accounting of intangible assets in accordance with International Accounting Standards is determined as well as the procedure of fair value estimation of both internal generated and purchased intangible assets. There were also indicated concepts of revaluation and impairment of intangible assets due to the correct estimation of their useful life and economic utility. Also in the article was mentioned when the amortization of the intangible asset should begin. The methods of intangible assets valuation were determined and details for each method were characterized as well. The intangible assets were indicated due to the ability to identify them. The concept of goodwill associated with unidentifiable intangible assets, its accounting in accordance with international accounting standards and the importance of its evaluation to determine the fair value of the business. But the area of goodwill which cannot be detected based on International Financial Reporting Standards is still pourly researched. According to this issue, recommendations for further research of this specific area were given.
This paper deals with determining of the value of companies and financial leverage. The author tries to find the optimum debt ratio for selected companies in the Czech Republic. The method of yield option extension is used for evaluating a company. The DCFC method was selected as the yield method, due to its simplicity. The dynamic model used allows us to make changes in the debt ratio with recalculations of all parameters that depend on it. The assessment is made from two points of view: Firstly, the maximum of the total amount of financial resources, and, secondly, the maximum of the inverse sums of the ROE index and the ratio of equity to the value of the company. The values of the total debt ratio and the long-term debt ratio are shown as results.
The article is devoted to the analysis of the process of deoffshorization at the present stage of development of the Ukrainian statehood and prospects of its further development. The urgency of the problem described in the article is due to significant losses from offshoring for the economy of Ukraine, which, in turn, requires the development of effective tools to regulate the relationship of residents with «tax havens». It is noted that despite significant scientific works and current research, today there is no single point of view on the effectiveness of the existing mechanism of deoffshorization of national economies by international regulators, tools to combat tax erosion and tax evasion. The article considers the definition of «deoffshorization», describes the mechanism of deoffshorization of the national economy. It has been established that one of the most important goals of global deoffshorization is to create equal conditions for the movement of capital between countries, without giving preference to countries that have more attractive tax conditions. Emphasis is placed on the fact that the harmonization of anti-offshore and tax policies is one of the key processes, as deoffshorization cannot be effective without increasing the responsibility for non-compliance with tax legislation. International experience on deoffshorization processes is analyzed. Attempts by the Ukrainian legislature to resolve issues related to deoffshorization are considered. It is emphasized that despite the fact that some mechanisms of counteraction to cross-border tax evasion schemes are fragmented in Ukraine, such mechanisms need further clarification and implementation of tools that will allow effective control over the relevant areas and ensure effective functioning of the domestic counteraction system. tax minimization. It is concluded that there is an objective need to bring the degree of responsibility for violations of tax legislation as much as possible in line with international practice and to ensure the transition to a qualitatively new level of international cooperation in the exchange of tax information.
Valuation of the enterprise is one of the main stages in the implementation of mergers and acquisitions. With the help of M&A, a business has the opportunity to develop, and if a business develops, then the industry in which the business operates develops. All this further contributes to the development of the national economy. That is why the assessment of the value of the enterprise is important both for the development of a particular enterprise and for understanding the development trends of the industry and the national and world economy as a whole. That is why choosing the right method and approach to assessing the value of the enterprise is important and relevant today. If you choose the right approach, the risks of overestimating or underestimating the value of the enterprise are minimized, due to such factors as: the nature of the market in which the company operates, the characteristics of the enterprise, its internal and external factors, the identified reason for evaluation. By assessing the value of the enterprise, the firm can identify the main factors that positively affect the value of the enterprise, which will positively affect the enterprise in the future, and for investors it can be a key indicator in making important decisions. The article considers the following methods and approaches: income (cash flow discounting method and method of determining the capitalized value of income), market (capital market method, transaction method and method of industry ratios) and cost (net asset value method, book value method, replacement cost method), liquidation value method and excess profit method). The main approaches, their essence, advantages and disadvantages of each approach, identified patterns of use of each approach and developed an algorithm for their application to assess enterprises based on their age, condition and existence of a developed market, which can greatly facilitate the selection of the required method. It also proposes a comprehensive method of estimating the value of the business based on the cost approach by calculating net assets using balance sheet data: value of fixed assets, current assets, goodwill and long-term and short-term liabilities and collateral.
For constant growth companies, we prove that the value of tax shields in a world with no leverage cost is the present value of the debt, times the tax rate, times the required return to the unlevered equity, discounted at the unlevered cost of equity. Please note that this does not mean that the appropriate discount for tax shields is the unlevered cost of equity, since the amount being discounted is higher than the tax shield (it is multiplied by the unlevered cost of equity and not the cost of debt). Rather, this result arises as the difference of two present values. We also show that the value of tax shields is the difference between the present values of two different cash flows with their own risk: the present value of taxes for the unlevered company and the present value of taxes for the levered company. This is the difference between the present values of two separate cash flows each with its own risk.