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VALUATION: PRINCIPLES AND PRACTICE In this chapter, we look at how to value a firm and its equity, given what we now know about investment, financing, and dividend decisions. We will consider three approaches to valuation. The first and most fundamental approach to valuing a firm is
There are several commonly used methods of valuation. Each method may at times appear more theoretically justified in its use than others. The soundness of a particular method is entirely based on the relative circumstances involved in each individual case.
IVS 105 Valuation Approaches and Methods provides the overarching valuation approaches and methods applicable to all valuations and forms part of the extended General Standards Section within IVS 2017.
In general terms, there are three approaches to valuation. The first, discounted cashflow valuation, relates the value of an asset to the present value of expected future cashflows on that asset. The second, relative valuation, estimates the value of an asset by
CHAPTER 1. INTRODUCTION TO VALUATION. Every asset, financial as well as real, has a value. The key to successfully investing in and managing these assets lies in understanding not only what the value is but also the sources of the value.
In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years.
variety of valuation methods: discounted cash flow models, price and enterprise value multiples, economic value analysis, and real option analysis. We consider each of those valuation methods in the context
There are three acceptable methods that practitioners can use to perform a business valuation: the income approach, the market approach, and the asset approach. Each method may at times appear more theoretically justified in its use than others. The soundness of a particular method is entirely based on the relative circumstances involved in each
Each of these valuation approaches includes different, detailed methods of application. • The goal in selecting valuation approaches and methods for an asset is to find the most appropriate method under the particular circumstances. No one method is suitable in every possible situation. The selection process should consider, at a minimum:
In this paper, we describe the four main groups comprising the most widely used company valuation methods: balance sheet-based methods, income statement-based methods, mixed methods, and cash flow discounting-based methods. The methods that are conceptually “correct” are those based on cash flow discounting.