ENG ELC 220 Lecture Notes - Lecture 10: Double-Entry Bookkeeping System, The Terminal, Autoregressive Model
1 Nov 2020
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Valuation is the process of converting a forecast into an estimate of the value of the firm"s assets or equity. Different stakeholders may use valuation for their own purposes. A wide variety of valuation approaches are employed: Discounted dividends: present value of forecasted future dividends. Discounted cash flow (dcf) analysis: discounted forecasts of cash flow to arrive at present value. Discounted abnormal profit: sum of book value and pv of forecasted abnormal profits or losses. Discounted abnormal profit growth: sum of capitalized next-period profit or loss and pv of forecasted abnormal profit growth beyond next period. Valuation based on price multiples: apply an appropriate price multiple derived from the value of comparable firms. Throughout this chapter, for detailed formulas and application, i refer to the book itself. Ultimately, the value shareholders get out of a firm is the present value of the cash payoffs that they receive.
