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Ivanovski, Zoran, Zoran Narasanov, and Nadica Ivanovska. "Performance Evaluation of Stocks’ Valuation Models at MSE." Economic and Regional Studies / Studia Ekonomiczne i Regionalne 11, no. 2 (June 1, 2018): 7–23. http://dx.doi.org/10.2478/ers-2018-0011.
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Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.
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KATO, KELLY. "Valuation Of “S” Corporations Discounted Cash Flow Method." Business Valuation Review 9, no. 4 (December 1990): 117–22. http://dx.doi.org/10.5791/0882-2875-9.4.117.
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Bondarchuk, Alina. "PROBLEMS BUSINESS VALUATION ENTERPRISES DISCOUNTED CASH FLOW METHOD." Drukerovskij vestnik, no. 1 (March 2015): 142–46. http://dx.doi.org/10.17213/2312-6469-2015-1-142-146.
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Janiszewski, Sławomir. "How to Perform Discounted Cash Flow Valuation?" Foundations of Management 3, no. 1 (January 1, 2011): 81–96. http://dx.doi.org/10.2478/v10238-012-0037-4.
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How to Perform Discounted Cash Flow Valuation?Within the last few decades the quickly accelerating globalization processes contributed to rapid increase in the value of the global capital markets, and mergers and acquisitions transactions. This implicated the rising importance of methodologies that enable investors to efficiently value the companies. The aim of this elaboration is to present practical approach towards the discounted cash flow company valuation method, considered one of the most effective but simultaneously one of the most sophisticated among all. The article comprises purely theoretical as well as practical knowledge, based on the author's broad professional experiences.
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Russell, Mark. "The valuation of pharmaceutical intangibles." Journal of Intellectual Capital 17, no. 3 (July 11, 2016): 484–506. http://dx.doi.org/10.1108/jic-10-2015-0090.
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Purpose – The purpose of this paper is to value the patents of pharmaceutical companies using discounted cash flows, and compare the value-relevance of these assets against alternative intangible asset measures such as reported intangible assets and R & D capital. Design/methodology/approach – The study values pharmaceutical intangibles using three methods: an income method; the sum of unamortised R & D expenditures; the firm’s reported intangible assets. Value-relevance tests use ordinary least squares regression and Vuong and Clarke tests. Findings – First, the study finds that the discounted cash-flow valuation of pharmaceutical patents is value-relevant. Second, the value of pharmaceutical patents explains market value better than reported intangible assets but not R & D capital. However, the valuation of pharmaceutical patents is more consistent with the risks of R & D than the valuation of R & D capital which assumes recovery of R & D expenditure. Originality/value – This is the first known study that values patents using an income method and compares those valuations with reported intangible assets and R & D capital valuation models.
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Karminsky, A., and E. Frolova. "Methods of Bank Valuation in the Age of Globalization." MGIMO Review of International Relations, no. 3(42) (June 28, 2015): 173–83. http://dx.doi.org/10.24833/2071-8160-2015-3-42-173-183.
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This paper reviews the theory ofvalue-based management at the commercial bank and the main valuation methods in the age of globalization. The paper identifies five main factors that significantly influence valuation models selection and building: funding, liquidity, risks, exogenous factors and the capital cushion. It is shown that valuation models can be classified depending on underlying cash flows. Particular attention is paid to models based on potentially available cash flows (Discounted cash flow-oriented approaches, DCF) and models based on residual income flows (Residual income-oriented approaches). In addition, we consider an alternative approach based on comparison with same sector banks (based on multiples). For bank valuation equity discounted сash flow method is recommended (Equity DCF). Equity DCF values equity value of a bank directly by discounting cash flows to equity at the cost of equity (Capital Asset Pricing Model, CAPM), rather than at the weighted average cost of capital (WACC). For the purposes of operational management residual income-oriented approaches are recommended for use, because they are better aligned with the process of internal planning and forecasting in banks. For strategic management residual income-oriented methods most useful when expected cash flows are negative throughout the forecast period. Discounted сash flow-oriented approaches are preferable when expected cash flows have positive values and needs for models using is motivated by supporting the investment decisions. Proposed classification can be developed in interests of bank management tasks in the midterm in the age of globalization.
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HENRIQUE POLICARPO NEVES, MARCOS. "AVALIAÇÃO FINANCEIRA ATRAVÉS DA FERRAMENTA VALUATION, PELO MÉTODO DO FLUXO DE CAIXA DESCONTADO, NO BANCO DE CAPITAL ABERTO ITAÚ UNIBANCO HOLDING S.A." Revista Científica Semana Acadêmica 9, no. 205 (September 17, 2021): 1–17. http://dx.doi.org/10.35265/2236-6717-205-9171.
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The valuation process of companies is essential for investors to estimate the fair value of a company. Once it has been established, it is possible to compare with the market value and thus judge whether an asset is cheap, fair or expensive. There are several methodologies for calculating the valuation of a company, among which the following stand out: method of market multiples; discounted cash flow method; method based on the book value. In this sense, the present work aims to evaluate the fair price of the shares of Itaú Unibanco bank (ITUB4) through the discounted cash flow method. For this, data about the company were used from the balance sheet and the statement of income for the year, made available on the internet by the bank. After these data analyzes and the establishment of some assumptions, the cash flow for the next 10 years was projected. From this, the flows were brought to present value, to calculate the fair price of the company's shares, using an appropriate discount rate. As a final result, the model indicates that the shares are undervalued by the market, that is, they are cheap and with a growth potential of 32%.
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Kasper, Larry J. "S Corporation Valuations—An Analysis in Search of a Solution." Business Valuation Review 26, no. 4 (January 1, 2007): 127–36. http://dx.doi.org/10.5791/0882-2875-26.4.127.
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Abstract Until now, the approaches to valuing S corporations have focused on two main aspects: differences in tax rates for subchapter S and C corporations and the appropriate discount rates to use in valuing them. The problem lies with the fact that traditional earnings methods of valuation, including discounted cash flow, are faced with the dilemma of having a “pretax,” that is, untaxed, cash flow passed through to the S corporation shareholder that should be discounted at the post-corporate, but preshareholder, tax discount rate. Empirical evidence is critically reviewed herein.
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Hustert, Frank. "Der Prozess der Unternehmensbewertung am Beispiel des DCF-Verfahrens." Der Betriebswirt: Volume 58, Issue 1 58, no. 1 (February 28, 2017): 25–28. http://dx.doi.org/10.3790/dbw.58.1.25.
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Der Artikel zeigt grundlegend den Prozess der Unternehmensbewertung auf. Zu Beginn werden verschiedene Anlässe und Zwecke der Unternehmensbewertung verdeutlicht, um im Anschluss daran unterschiedliche Bewertungsverfahren aufzuzeigen. Da in der Praxis insbesondere der Bewertung von Unternehmen auf Basis von Discounted Cashflows eine hohe Bedeutung zukommt, wird auf dieses Bewertungsverfahren detailliert eingegangen. The article explains the process of business valuations. First different reasons and purposes are illustrated and afterwards several valuation methods are summarized. As business valuation based on discounted cash flows is common in business today, the article focusses on this method. Keywords: unternehmensbewertung, prozesse, discounted cashflow verfahren
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Hakim, Muhammad Akhirul, Dr Raden Aswin Rahadi, and M. Akmal Adrianza. "VALUATION BUSINESS IN PEER TO PEER LENDING WITH DISCOUNTED CASH FLOW (DCF) METHOD." Advanced International Journal of Banking, Accounting and Finance 2, no. 3 (June 10, 2020): 01–12. http://dx.doi.org/10.35631/aijbaf.23001.
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Start-up companies are businesses that are now very popular in Indonesia. To support the business moving fast, these businesses need investors by offering the company's fair value. With similar but not the same calculation, in which start-up companies have different financial indicators and financial assumptions with conventional companies, in this case, the valuation is included innovation value and disruption probability. This research is a descriptive study which is based on case studies in the research object. The object of research is PT ABC, a company engaged in the field of Financial Technology. Data collection is done by collecting secondary data from the company and observation during the internship. The analysis is done by conducting a sensitivity analysis with the DCF method using Microsoft Excel. Valuation is also very closely related to Financial Projection to predict the state of the industry pear to pear landing in the future. The data shows that the enterprise value is Rp. 46,084,735,403,742. Then, EV/Revenue is 1,748 times, and the percentage of raise is 100%. According to DCF Valuation, the author suggests investors invest in the company. Because the valuation is very good.
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BASCI, Esref Savaş. "FIRM VALUATION CONCEPT AND DISCOUNTED CASH FLOW METHOD: A COMPARISON OF STOCK MARKETS." Annals of Spiru Haret University. Economic Series 19, no. 2 (June 28, 2019): 51–60. http://dx.doi.org/10.26458/1922.
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Company (or firm) valuation – an evaluation process of a company to appreciate the value of a company’s right in this company or business. There are two objective and subjective aspects of value. The subjective value is the value determined by individuals and desires. For example, it is a subjective decision that the investor assesses the competitor over the normal to be monopoly in the market. The objective value is the value determined by the cost and benefits of the goods and services.Although there are many performance measures that measure company success, none is as comprehensive as value. There is a strong and linear relationship between a company’s market value and its discounted cash flows. Because earnings are used to generate the income statement, they cannot be used to measure cash flows.Firm valuation means seeking the goal of the firm which is listing it on the Stock Exchange. Real value of the firm can be calculate with different methodologies. These methods are related to future expectations or background of the firm’s financial data. Discounted Cash Flow (DCF) Method is one of the firm valuation methods used all around the world and it is accepted by the experts.Market value is also used for comparison and performance measurement purposes. Valuation of a company’s future expectations, current status, mergers or acquisitions is extremely important. Even the firm value can be used to compare the capital markets of countries. In our study, capital markets and total market values of selected countries are compared. The increase in the share price increases the market value of the company. Therefore, the aim of the firms should be to increase the shareholder value or to take decisions to increase the stock price.
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Jaunzeme, Justine Sophia. "Combining Environmental and Spatial Discount Rates for Valuation of Assets According to International Financial Reporting Standards." Economics and Culture 13, no. 1 (June 1, 2016): 14–20. http://dx.doi.org/10.1515/jec-2016-0002.
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Abstract Application of discount rate in finance and accounting is founded on the concept of time value of money. Discounted cash flow model is widely used for asset valuation under the International Financial Reporting Standards (in abbreviation, IFRS). The discount rate applied in valuation models normally is the best rate of return that investors would earn alternative investments. With emergence of ecological economics as a separate branch of economics, the concept of ecological (or in other words, environmental discount rate) has been elaborated. Muller (2013) in his paper ‘The Discounting Confusion: an Ecological Economics Perspective’, argues that traditional discounting can undermine long-term sustainability of the economy. In his work, Frank G. Muller considered adjusting the traditional discount rate in order to arrive at an environmental discount rate, which would help to ensure the sustainability of the economy. Hannon (2001) and Perrings (2001) in their paper ‘An Introduction to Spatial Discounting’ consider another variation of the discount rate - spatial discount rate. Spatial discount rate represents the rate at which the diffusion of environmental effects of economic activities is discounted over space. By February 2016, neither the application of environmental nor spatial discount rates under IFRS has been considered. The purpose of this paper is to analyse the implications that environmental and spatial discounting would have for the application of discounted cash flow model according to IFRS. The research methods applied are methods of economic analysis and synthesis.
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Grabowski, Roger J. "Comparing Growth Rates Used in Discounted Cash Flow Valuations." Business Valuation Review 40, no. 1 (January 1, 2021): 2–12. http://dx.doi.org/10.5791/20-00007.1.
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Estimating growth in net cash flows is one of the key components in applying the discounted cash flow (DCF) method in valuing any company, reporting unit, or other business unit. This paper explains the underlying assumptions of the DCF method and demonstrates how to compare the most commonly used basis for estimating net cash flows (sometimes referred to as free cash flows), expected organic growth, to historic estimates of growth of the subject company and estimates of earning growth commonly prepared by security analysts.
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Allee, Kristian D., Devon Erickson, Adam M. Esplin, and Teri Lombardi Yohn. "The Characteristics, Valuation Methods, and Information Use of Valuation Specialists." Accounting Horizons 34, no. 3 (April 1, 2020): 23–38. http://dx.doi.org/10.2308/horizons-19-057.
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SYNOPSIS We provide insights into the inputs and valuation models used by valuation specialists. We survey 172 valuation specialists and conduct several follow-up interviews covering various topics, including the valuation inputs, models, and industry information that they use, as well as how they estimate long-term growth and the cost of capital. We find that valuation specialists rely on their professional judgment to select a valuation model but prefer the discounted cash flow (DCF) model. They primarily rely on the firm's historical performance when forecasting the financial statements, but communication with management is particularly relevant for forecasting future earnings or cash flows. When estimating the cost of capital, they most commonly use the risk-free rate with subjective adjustments. The results of our study provide insights on the information use of valuation specialists that are relevant to other valuation specialists, managers, academic researchers, and regulators. JEL classification: M41; G12; G17; G32.
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Ferraro, Olga. "A Brief Overview of the IPO Valuation Methods." International Journal of Business and Management 15, no. 12 (November 6, 2020): 41. http://dx.doi.org/10.5539/ijbm.v15n12p41.
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The method adopted for pricing in an Initial Public Offering is a key issue in the studies on business valuation. In particular, various researches sought to verify which valuation methodologies are preferable in the context of an initial public offering.
The review of the main literature shows that Discounted Cash Flow, Market Multiples, Dividend Discount Model and, even if just to some degree, Economic Value Added are the most popular methodologies in the valuation practice.
The comparison among different valuation methods, proposed in the literature and variously applied in national and international practices, reveals the necessity to pay more attention to valuation mechanisms that drive the pricing of the shares to be listed.
The topic is linked to the ever more pertinent debate on the use of different methods in professional practice: financial experts and analysts tend, in fact, to compare results according to different estimates.
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Aamir, Muhammad, Hafiz Muhammad Nadeem, Khawer Naheed, and Allah Bakhsh Khan. "How Companies Value Stock Prices After Going Public: Evidence from Emerging Pakistan economy." Journal of Accounting and Finance in Emerging Economies 4, no. 1 (June 30, 2018): 29–38. http://dx.doi.org/10.26710/jafee.v4i1.338.
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The purpose of this study is to estimate the accuracy and authenticity of valuation methods used by underwriters to set preliminary offer price. This study uses complete universe of all newly listed companies during 2000 to 2015 on Pakistan Stock Exchange. We analyzed the determinants of the Initial Public Offering (IPOs) by comparing the ex-ante and ex-post characteristics of IPOs firms. Binary logistic model was used for evaluation of variables. Results revealed that underwriters use four different valuation methods to set IPO preliminary offer price namely as dividend discount model (DDM), discounted cash flow method (DCF), peer groups multiple (MULT) and economic valuation method (EVA). This study used Binary Logistic Regression model to estimate the accuracy and authenticity of these valuation methods. Results of this study can help the portfolio managers for constructing their effective portfolio strategies. This study also helps to highly levered firms to get cheaper long term capital by going public. This study is also important for underwriters to counter check their valuation patterns for IPO firms.
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Pšunder, Igor, and Andreja Cirman. "Diskontna mera pri uporabi metod, ki temeljijo na diskontiranem denarnem toku, za potrebe analize nepremičninskih naložb in vrednotenja nepremičnin." Geodetski vestnik 55, no. 03 (2011): 561–75. http://dx.doi.org/10.15292/geodetski-vestnik.2011.03.561-575.
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Michalski, Dariusz. "VALUATION OF COMPANIES BASED ON REAL OPTION APPROACH." Zeszyty Naukowe Wyższej Szkoły Humanitas Zarządzanie 19, no. 1 (March 30, 2018): 191–205. http://dx.doi.org/10.5604/01.3001.0012.0528.
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Traditional way of companies valuation based on discounted cash-flows do not consider the value of flexibility that managers can create. The objective of this article is the presentation of the theoretical aspects of companies valuation with real option’s approach and DCF method. The case study regards the power plant valuation. Author took assumptions that valuation method based only on DCF do not considers in proper way the flexibility connected to future companies activity. The development of valuation method by real option approach can complete these deficiencies in random environment.
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Wei, Xing, and Xian Mei. "Poly Real Estate Value Evaluation Research." Applied Mechanics and Materials 687-691 (November 2014): 5075–79. http://dx.doi.org/10.4028/www.scientific.net/amm.687-691.5075.
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This paper made valuation research on poly real estate by combining the actual situation of poly real estate and special factors affecting real estate industry assessment, using relative valuation method p/e ratio method and price-to-book ratio method, and discount cash flow method in absolute valuation method respectively. Three methods valuation results have little difference from the actual price, and are in line with the actual situation. By contrast, two methods valuation results are slightly lower than the actual price, which means that poly still has a certain rise space. From overall analysis, discount cash flow method is more rational comparing with valuation method.
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Pawlak, Zbigniew, and Andrzej Smoleń. "Valuation Methods of Sports Companies." Physical Culture and Sport. Studies and Research 46, no. 1 (December 1, 2009): 243–53. http://dx.doi.org/10.2478/v10141-009-0021-1.
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Valuation Methods of Sports CompaniesThe valuation of sports companies is indispensable during commercial buy and sell transactions, restructuring processes, determining premiums for the purposes of property insurance.For the valuation of sports companies four approaches are possible i.e. assets-based, income-based, market-based and mixed-valuation approaches. For each approach there are specific company valuation methods. Using real-life examples, this paper discusses the following sports companies' valuation methods: book value, adjusted book value, replacement, liquidation, capitalized profit, discounted cash flow, comparative worth, market multiples and German valuation method. The mixed approach using the German method is applied when the output prices from conventional company valuation methods vary too much, and differences in values exceed 25%.From the management accounting perspective the skilful application of valuation methods to sports companies should be regarded as one of the prerequisites for effective management of sports companies.
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Vayas-Ortega, Germania, Cristina Soguero-Ruiz, José-Luis Rojo-Álvarez, and Francisco-Javier Gimeno-Blanes. "On the Differential Analysis of Enterprise Valuation Methods as a Guideline for Unlisted Companies Assessment (I): Empowering Discounted Cash Flow Valuation." Applied Sciences 10, no. 17 (August 25, 2020): 5875. http://dx.doi.org/10.3390/app10175875.
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The Discounted Cash Flow (DCF) method is probably the most extended approach used in company valuation, its main drawbacks being probably the known extreme sensitivity to key variables such as Weighted Average Cost of Capital (WACC) and Free Cash Flow (FCF) estimations not unquestionably obtained. In this paper we propose an unbiased and systematic DCF method which allows us to value private equity by leveraging on stock markets evidences, based on a twofold approach: First, the use of the inverse method assesses the existence of a coherent WACC that positively compares with market observations; second, different FCF forecasting methods are benchmarked and shown to correspond with actual valuations. We use financial historical data including 42 companies in five sectors, extracted from Eikon-Reuters. Our results show that WACC and FCF forecasting are not coherent with market expectations along time, with sectors, or with market regions, when only historical and endogenous variables are taken into account. The best estimates are found when exogenous variables, operational normalization of input space, and data-driven linear techniques are considered (Root Mean Square Error of 6.51). Our method suggests that FCFs and their positive alignment with Market Capitalization and the subordinate enterprise value are the most influencing variables. The fine-tuning of the methods presented here, along with an exhaustive analysis using nonlinear machine-learning techniques, are developed and discussed in the companion paper.
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CARTE, NORMAN. "THE MAXIMUM ACHIEVABLE PROFIT METHOD OF PATENT VALUATION." International Journal of Innovation and Technology Management 02, no. 02 (June 2005): 135–51. http://dx.doi.org/10.1142/s0219877005000435.
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The maximum achievable profit method of patent valuation mitigates problems associated with the contemporary discounted cash flows method. According to this new method, the maximum incremental profit that commercialization of a patent can achieve under ideal circumstances is determined. The present value of this profit is the highest valuation that the patent can receive. All of the factors that are known to affect the value of a patent are graded to provide a score. A transfer function uses the score, the present value of the maximum achievable incremental profit, and an investment amount to determine a valuation.
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Guo, Hongtao. "After-Tax Discounting: A Research Edge." Journal of Accounting, Business and Management (JABM) 27, no. 1 (May 1, 2020): 86. http://dx.doi.org/10.31966/jabminternational.v27i1.565.
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This research note addresses after-tax discounting for pricing assets. Specifically, it analyzes the appropriate way to discount after-tax payoffs from assets that trade in capital markets in which both taxable and tax-free investors can buy and sell both taxable and tax-free instruments. The effect of the tax status of the investor and the tax status of the financing tool that an investor uses on price of an asset are discussed. Secondly, it derives the proper after-tax discount rate to use in the risk neutral valuation method for pricing assets that have state-contingent payments, typically structured in a lease based transaction. Dynamic state-contingent payoffs and cash flow processes are developed. Pre-tax discounted price, after-tax discounted payoffs are considered, then after-tax discount rate is derived. Included in this analysis of state-contingent discounting is the effect of depreciation expense, the only expense associated with the use of the asset, on after-tax discount rates.
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Guo, Hongtao. "After-Tax Discounting: A Research Edge." Journal of Accounting, Business and Management (JABM) 27, no. 2 (October 23, 2020): 86. http://dx.doi.org/10.31966/jabminternational.v27i2.694.
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This research note addresses after-tax discounting for pricing assets. Specifically, it analyzes the appropriate way to discount after-tax payoffs from assets that trade in capital markets in which both taxable and tax-free investors can buy and sell both taxable and tax-free instruments. The effect of the tax status of the investor and the tax status of the financing tool that an investor uses on price of an asset are discussed. Secondly, it derives the proper after-tax discount rate to use in the risk neutral valuation method for pricing assets that have state-contingent payments, typically structured in a lease based transaction. Dynamic state-contingent payoffs and cash flow processes are developed. Pre-tax discounted price, after-tax discounted payoffs are considered, then after-tax discount rate is derived. Included in this analysis of state-contingent discounting is the effect of depreciation expense, the only expense associated with the use of the asset, on after-tax discount rates
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Wang, Guan Jun. "Discounted Cash Flow Methods in Lease versus Purchase Analysis—A Technical Note." International Journal of Accounting and Finance Studies 3, no. 1 (June 23, 2020): p67. http://dx.doi.org/10.22158/ijafs.v3n1p67.
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The earlier framework uses the before-tax cost of debt as the discount rate in valuation of lease contracts for the reason that such framework explicitly includes the interest tax credits as a component of each period’s cash flows. The short-cut or modern standard textbook approaches use after-tax cost of debt as the discount rate for the reason that it ignores the interest tax credits. Some existing literatures state the two approaches are equivalent without exploring the reasons analytically. This note provides a mathematical demonstration showing, the two approaches are not equivalent accompanied by numerical examples.
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MAGNI, CARLO ALBERTO, STEFANO MALAGOLI, and GIOVANNI MASTROLEO. "AN ALTERNATIVE APPROACH TO FIRMS' EVALUATION: EXPERT SYSTEMS AND FUZZY LOGIC." International Journal of Information Technology & Decision Making 05, no. 01 (March 2006): 195–225. http://dx.doi.org/10.1142/s0219622006001812.
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Discounted cash flow techniques are the generally accepted methods for valuing firms. Such methods do not provide explicit acknowledgment of the value determinants and overlook their interrelations. This paper proposes a different method of firm valuation based on fuzzy logic and expert systems. It does represent a conceptual transposition of discounted cash flow techniques but, unlike the latter, it takes explicit account of quantitative and qualitative variables and their mutual integration. Financial, strategic and business aspects are considered by focusing on 29 value drivers that are combined together via "if–then" rules. The output of the system is a real number in the interval [0, 1], which represents the value-creation power of the firm. To corroborate the model a sensitivity analysis is conducted. The system may be used for rating and ranking firms as well as for assessing the impact of managers' decisions on value creation and as a tool of corporate governance.
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Гераськина and A. Geraskina. "The Method of Real Options in the Evaluation of Strategic and Investment Decisions." Economics 5, no. 3 (June 15, 2017): 41–45. http://dx.doi.org/10.12737/article_59393a6b428b54.77069649.
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The method of real options is one of the new approaches to estimate investment projects’ cost and it is an important addition to discounted cash flow method. Real option significantly increases the efficiency of the project due to the possibility of decision-making during its implementation. This aspect is especially important in unstable environmental conditions. The main differences between the financial and real options are presented. The differences of valuation of investment projects by the real options method and net present value are examined. The article presents the types of real options, as well as the methods of calculating the option price.
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Larkin, Patrick J. "To Iterate Or Not To Iterate? Using The WACC In Equity Valuation." Journal of Business & Economics Research (JBER) 9, no. 11 (October 28, 2011): 29. http://dx.doi.org/10.19030/jber.v9i11.6497.
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The textbook discounted cash flow (DCF) valuation method involves estimating a target debt ratio for the firm, discounting firm cash flows at the WACC to estimate firm value, then subtracting the current value of debt to get equity value. This method gives the correct equity value in situations in which the firm will move toward the target debt ratio after the transaction is complete, such as takeovers and capital budgeting projects. The textbook method does not work well for estimating equity value in passive investments in which leverage is unlikely to change as a result of the potential transaction. Estimating equity value in passive investments when leverage is unlikely to change requires a simple iterative procedure to correct for circularity, which is demonstrated here. This situation sows confusion among students and practitioners. Finance scholars and textbook authors are aware of the situation but the author has never seen it clearly explained in prior textbooks or articles.
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Grabowski, Roger J., and Anas Aboulamer. "Total Beta—Where Does It Fit in Valuation Theory." Business Valuation Review 39, no. 1 (September 1, 2020): 14–25. http://dx.doi.org/10.5791/20-00005.1.
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The valuation of any company by the discounted cash flow method is divided into two different tasks: forecasting cash flows and discounting these same cash flows using the appropriate discount rate. The latter requires a good understanding of the risks faced by the subject company's cash flows to be able to determine the appropriate risk premia to compensate a typical willing buyer and satisfy a typical willing seller. There is a high level of ambiguity and dispersion of opinions about how to quantify these risks especially when valuing closely held companies. To avoid dealing with the task of identifying and measuring components of the appropriate risk premia for the subject company, some practitioners have turned to a measure that, supposedly, lumps all risks together (which they term Total Beta) and purportedly then allows one to estimate a total cost of equity. The proponents of total beta believe that by using a “total risk” beta there is no need to consider size premia, lack of marketability premia or company specific risk premia. Critics of total beta argue that there is no theoretical basis for total beta as a measure of total risk. This paper argues for the camp of the critics of total beta because we believe it represents a major departure from finance theory and does not adjust the cost of capital correctly for Company Specific Risk. Then, we examine academic research to show that the two major arguments used by total beta proponents to discredit the existing model do not hold. We do not argue that the existing models are absolute truth. We recognize the limitation of the CAPM and/or Modified CAPM models and we admit their inability of answer all questions regarding the cost of equity. However, we believe that total beta is not a step in the right direction.
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Berkman, Henk, Michael E. Bradbury, and Jason Ferguson. "The Accuracy of Price-Earnings and Discounted Cash Flow Methods of IPO Equity Valuation." Journal of International Financial Management and Accounting 11, no. 2 (June 2000): 71–83. http://dx.doi.org/10.1111/1467-646x.00056.
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Łaguna, Teresa Maria, and Aleksander Wasiuta. "Wind Powers Stations and Market Valuation." Olsztyn Economic Journal 8, no. 4 (December 31, 2013): 361–71. http://dx.doi.org/10.31648/oej.3353.
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This study presents the results of research on the market valuation of wind power stations. The valuation of wind power station projects is an individualized process and there is a growing need for systematization of the valuation theory of wind power stations as specific structures. This will enable reliable reflection of their value at each stage of the investment process, possibly due to consideration for value standards sought by different entities interested in valuation. The theoretical part presents the conditions of the development of the analysed energy sector in Poland and provides the different value categories found in valuation practice, both during project implementation and after power plant start-up. Variation in wind power station project implementation phases was then indicated, recommending the discounted cash flow method as a universal valuation tool for each stage of the project life cycle.
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Magaev, Nikolay A., Gagik M. Mkrtchyan, and Larisa V. Skopina. "Real Options Valuation of Deposits." World of Economics and Management 19, no. 2 (2019): 31–48. http://dx.doi.org/10.25205/2542-0429-2019-19-2-31-48.
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Income approach based on the method of discounted cash flows (DCF) seems to be the main instrument to evaluate economic efficiency of investment projects when developing oil and gas fields. However, at early stages of exploration and exploitation of hydrocarbon resources, uncertainty and risks of investors are very high, which limits the use of traditional methods. It is necessary to develop valuation tools accounting high uncertainty of input data on the exploitation of oil and natural gas resources, flexibility of their development by formation of rational production strategy with volatility of the operating parameters such as the world oil prices and the size and value of oil and gas reserves. In this article presents the real options approach which accounts the potential of flexible and adaptive project management providing advantages in assessing development projects as compared to the traditional income methods. Implementation of this method is exemplified by the case of oil and gas fields in the east of the Siberian platform.
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Pivorienė, Agnė. "Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects." Economics and Business 30, no. 1 (April 1, 2017): 91–101. http://dx.doi.org/10.1515/eb-2017-0008.
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Abstract In today’s uncertain and highly competitive business environment, the difficulty to make strategic investment decisions is growing. The dominant discounted cash flow analysis requires the assumption of perfect certainty of project cash flows. However, under uncertainty traditional DCF approach falls short of providing adequate strategic decision support, and this situation demands new methods for investment evaluation. Real options approach (ROA) has shown the potential for valuation of strategic corporate investment decisions and managerial flexibility in situations of high uncertainty. Under ROA, projects are viewed as real options that can be valued using financial option pricing techniques. This framework allows their owner to keep investment options open and to benefit from the upside potential of an opportunity while controlling the downside risk. The main aim of this research is to investigate the feasibility of real options approach and traditional DCF analysis for assessment of strategic investment projects under environmental uncertainty.
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Aznar Bellver, Jerónimo, and Vicente Estruch Guitart. "Valoración de activos ambientales mediante métodos multicriterio. Aplicación a la valoración del Parque Natural del Alto Tajo." Economía Agraria y Recursos Naturales 7, no. 13 (October 15, 2011): 107. http://dx.doi.org/10.7201/earn.2007.13.06.
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The valuation of these goods can be a relevant element for their conservation and improvement, though the intangible and immaterial aspects of environmental assets difficult the utilisation of the traditional methods of valuation. This work presents a methodology for the valuation of those assets combining multi-criteria methods, the Analytic Hierarchy Process and the Goal Programming and traditional method the Discounted Cash Flows. The combination of both techniques allows extracting an indicator of the Total Economic Value (TEV) of an environmental asset, as well as of each partial value which make up the TEV, including tangible and intangible elements. The proposed methodology is applied to the valuation of the 'Alto Tajo' Natural Park.
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Grigoryev, V. V. "Specifics of the Discount Rate Calculaton in the Business Valuation." Economics, taxes & law 11, no. 3 (November 6, 2018): 83–88. http://dx.doi.org/10.26794/1999-849x-2018-11-3-83-88.
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The paper examines two main methods of the discount rate calculation for business valuation: cumulative and weighted average capital cost (WACC), discloses the importance of business valuation for improving the business activity of a company, proposes the principles of the discount rate calculation, examines ways to determine additional risks in the implementation of the cumulative method, and analyzes the costs of the equity and borrowed capital in the implementation of the WACC method. The purpose of the research was to perform a comprehensive analysis of the methods for calculating cash flow discount rates for equity capital and for all invested capital. The research resulted in the development of methods for measuring additional risks in the calculation of the cash flow discount rate for equity and identifying risks in the calculation of the weighted average discount rate of the cash flow for the total invested capital. The research findings can be used for boosting business activities as well as for business valuation and management. It is concluded that every percent of additional risk in the discount rate calculation increases the size of the rate and reduces the cost of a valuated business.
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Pšunder, Igor, and Andreja Cirman. "Discount rate in methods based on discounted cash-flow for the purpose of real estate investment analysis and valuation." Geodetski vestnik 55, no. 03 (2011): 546–60. http://dx.doi.org/10.15292/geodetski-vestnik.2011.03.546-560.
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Serikov, Pavel Y., Konstantin A. Sivolotsky, and Аndrey А. Balakirev. "R&D economic efficiency valuation methods and specifics of their application." SCIENCE & TECHNOLOGIES OIL AND OIL PRODUCTS PIPELINE TRANSPORTATION 10, no. 6 (November 30, 2020): 620–35. http://dx.doi.org/10.28999/2541-9595-2020-10-6-620-635.
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Valuation of research and development projects (R&D) is crucial for technological development, financial and operational performance improvement of companies. However, R&D valuation methods are not fully and in detail disclosed in publications, a single concept for assessing the effectiveness of R&D has not yet been developed. The cause of this scientific and practical problem is that scientific developments are carried out in conditions of increased risk and uncertainty, often aimed at solving strategic, long-term tasks, which does not allow at the initial stage to reliably evaluate their final effect of innovations. The object of research in the article are methods for assessing the economic efficiency of R&D. The aim of the article is to formulate an approach to R&D valuation method selection based on applicability criteria developed by the authors. In the course of the study, a review of existing methods for assessing effectiveness was conducted, their advantages and disadvantages were identified, and the feasibility of using a specific assessment method based on the specifics of scientific development was analyzed. There were considered R&D economic efficiency valuation models (discounted cash flows, Monte-Carlo simulations, real option valuation, decision tree analysis, relief from royalty method) as well as methods for determining discount rates used in these methods. When applying various valuation methods, the discount rate may vary due to differences in risk accounting approaches. There were also considered examples of alternative methods for R&D efficiency valuation such as grading system and integral efficiency index. The theoretical result is a review of R&D valuation methods and generalization of the information. The practical result of the work is the description of approach for selection of optimal R&D economic efficiency valuation method and possible implementation of the described approach in practice.
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Tiwari, Ranjit, and Harish Kumar Singla. "Do combining value estimates increase valuation accuracy? Evidence from Indian chemical industry." Journal of Accounting in Emerging Economies 5, no. 2 (May 1, 2015): 170–83. http://dx.doi.org/10.1108/jaee-09-2012-0036.
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Purpose – Being a developing nation with huge opportunity of growth prospects the assessment of valuation models becomes important to have a more realistic value estimate. The purpose of this paper is to empirically examine the comparative accuracy and explanatory performance of discounted cash flow (DCF) and residual income model (RIM) valuation models for the Indian chemical industry and come up with a composite valuation model. Design/methodology/approach – To achieve the objective of the study the authors first determine the intrinsic values using both the models. Comparisons of the models are based on prediction errors and the explanatory performance of market value on value estimates. The study uses panel regression to forecast estimates of earnings and measure explanatory performance. The authors examine the ability of the value estimates to explain cross-sectional variation in the observed market values. The study also uses GMM method for deriving robust estimators. Variables for the study are collected from the CMIE’s prowess data base (release 4). The authors consider all 1,075 BSE listed chemical companies for the purpose of the study. The study uses annual data points starting from 31 March 2002 to 31 March 2011. Findings – The comparative framework shows that both Residual Income model and Composite Valuation model are superior to Discounted cash flow model and are equally likely. But since composite value estimates considers all bonafide informations of individual models, the estimates of Composite Valuation model becomes more reliable. Research limitations/implications – The study only compares and combines the two most widely used valuation models around the world. Future studies can be conducted using the third widely used valuation models, i.e. multiples and see the level of accuracy of individuals as well as the composite model. Originality/value – As a concern very few research has been conducted in this area in India. This paper provides practitioners with a snapshot of the applicability of DCF and RIM valuation models. And also shows how a composite value estimate can improve accuracy.
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Jansen van Vuuren, David. "Valuing specialised property using the DCF profits method." Journal of Property Investment & Finance 34, no. 6 (September 5, 2016): 641–54. http://dx.doi.org/10.1108/jpif-06-2016-0047.
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Purpose The purpose of this paper is twofold: primary, to argue that the profits method, specifically a discounted cash flow (DCF)-based profits method, should be the preferred method of valuation when valuing specialised property. Secondary, to make technical recommendations in the application of the method. Design/methodology/approach Literature was reviewed on the theory of the profits method as well as physical valuations performed in practice. Improvements for the profits method are suggested from the review of six valuations conducted in South Africa in the specialised property sectors. A qualitative approach is followed in the research as broad principles are extracted from the valuation reports as implications and improvements for the profits method. Findings The profits method is more flexible and sophisticated than the cost approach in taking into account systematic and unsystematic risk. The profits method is more accurate than the cost approach in delivering a true reflection of the value of specialised property for any purpose but specifically for mortgage lending purposes and reduces the credit exposure risk of financial institutions. It also decreases pricing inefficiencies to be exploited by buyers and sellers. Practical implications Three improvements to the profits method are suggested. First, revenue could be forecasted based on a probability-weighted approach. Second, a modified capitalisation rate is suggested to the capitalisation rate formula in the calculation of G. Third, a market rental aggregation anchoring and judgement-based approach is suggested as rationale for determining the hypothetical rental split. Originality/value There seems to be a general lack in literature on the profits method of valuation and its application to specialised properties, specifically a DCF-based approach, with this paper being a technical contribution to the body of knowledge on this topic.
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Russell, Philip J. "Valuation of Imaging Centers: Alternative Methods and Detailed Description of the Discounted Cash Flow Approach." Journal of the American College of Radiology 4, no. 1 (January 2007): 53–64. http://dx.doi.org/10.1016/j.jacr.2006.08.019.
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Woo, Jonghak, Eungdo Kim, Tae-Eung Sung, Jongtaik Lee, Kwangsoo Shin, and Jeonghee Lee. "Developing an Improved Risk-Adjusted Net Present Value Technology Valuation Model for the Biopharmaceutical Industry." Journal of Open Innovation: Technology, Market, and Complexity 5, no. 3 (July 22, 2019): 45. http://dx.doi.org/10.3390/joitmc5030045.
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The financial valuation of a drug that is still under development is required for various purposes. The risk-adjusted net present value (r-NPV) method, which recently emerged in the biotech industry, uses the development attrition rate as a discount factor to reflect risk during each development phase. The r-NPV method was developed to overcome the disadvantages of the prevailing discounted cash flow and real options methods and considers drug type, as well as the stage of development in its approach. Using this method, the current study examines technology values in the biopharmaceutical industry and matches the clinical development periods and success rates of these new drugs by analyzing datasets from ClinicalTrials.gov and MedTrack DB. It thus provides support for an empirical valuation model for experts in the field. Notably, there is limited research on the attrition rate and development period of new substance drugs and the research results are not consistently presented. In addition to new substance drugs, further research is necessary to deepen understanding of the attrition rate and development period of biologically-based drugs because of their inherent physical and developmental differences. Similarly, research on performance specifics within drug class models would enable refinement of the model.
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Krulicky, Tomas, Jakub Horak, and Kristyna Skulcova. "Business valuation in times of crisis." SHS Web of Conferences 91 (2021): 01039. http://dx.doi.org/10.1051/shsconf/20219101039.
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Business valuation is very important and complex process, mainly in the current global situation. To determine the company value, we will base our calculations on an analysis of the internal environment of the company, which is affected by macroeconomic and microeconomic influences. The aim of this paper is to determine the value of a selected company using FCFF in an environment of negative and unplanned interventions in the economy. The main source for determining the value of the company is data obtained from the financial statements and annual reports of the limited liability company Pepco, s.r.o. from the period of 2013-2018. The method applied to the selected company is the discounted cash flow method, which is one of the most popular and most frequently used earnings methods. In the first years before the company became known on the Czech market, the value of the FCFF was more often than not in negative numbers. This also affected the value of the business. During next years, with the stable growth of the company, the value of the company also grew. We can expect that due to the global problem of COVID-19, the value of the company will decrease in 2020, but it will not have a very significant effect on its overall value.
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Vimpari, Jussi, and Seppo Junnila. "Valuing green building certificates as real options." Journal of European Real Estate Research 7, no. 2 (July 29, 2014): 181–98. http://dx.doi.org/10.1108/jerer-06-2013-0012.
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Purpose – The purpose of this study is first to evaluate whether real options analysis (ROA) is suitable for valuing green building certificates, and second to calculate the real option value of a green certificate in a typical office building setting. Green buildings are demonstrated as one of the most profitable climate mitigation actions. However, no consensus exists among industry professionals about how green buildings and specifically green building certificates should be valued. Design/methodology/approach – The research design of the study involves a theoretical part and an empirical part. In the theoretical part, option characteristics of green building certificates are identified and a contemporary real option valuation method is proposed for application. In the empirical part, the application is demonstrated in an embedded multiple case study design. Two different building cases (with and without green certificate) with eight independent cash flow valuations by eight industry professionals are used as data set for eight valuation case studies and analyses. Additionally, cross-case analysis is executed for strengthening the analysis. Findings – The paper finds that green certificates have several characteristics similar to real options and supports the idea of using ROA in valuing a green certificate. The paper also explains how option pricing theory and discounted cash flow (DCF) method deal with uncertainty and what shortcomings of DCF could be overcome by ROA. The results show that a mean real option value of 985,000 (or 8.8 per cent premium to the mean property value) was found for a Leadership in Energy and Environmental Design Platinum certificate in the Finnish property market. The main finding of the paper suggests that the contemporary real option valuation methods are appropriate to assess the monetary value and the uncertainty of a green building certificate. Originality/value – This is the first study to argue that option-pricing theory can be used for valuing green building certificates. The identification of the option characteristics of green building certificates and demonstration of the ROA in an empirical case makes questions whether the current mainstream investment analysis approaches are the most suitable methods for valuing green building certificates.
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Olbrich, Michael, Tobias Quill, and David J. Rapp. "Business Valuation Inspired by the Austrian School." Journal of Business Valuation and Economic Loss Analysis 10, no. 1 (January 1, 2015): 1–43. http://dx.doi.org/10.1515/jbvela-2014-0001.
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AbstractThe significant failure rates observed in mergers and acquisitions (M&A) indicate structural deficiencies in business transactions. This paper identifies serious weaknesses in common valuation methods that play a key role in poor transaction practice. Common valuation methods are in particular discounted cash flow (DCF) methods. DCF methods are usually based on neo-classical theories that assume the existence of a perfect and complete capital market. As will be demonstrated, the underlying theoretical patchwork is contradictory and lacks utility. Therefore, utilizing DCF methods to value a business and deduce economic decisions from such a valuation is decision-making built on sand. Following a normative-deductive methodology, this paper seeks an alternative theoretical concept to build a business valuation theory on solid ground. Such an alternative is found in the Austrian School of thought. The resulting valuation concept, subjective business valuation theory, is based on the theory of marginal utility proposed by Gossen, which was rediscovered and refined by the scholars of the early Austrian School. Contrary to highly restrictive neo-classical valuation, subjective business valuation approaches reality and is therefore well-suited for practical implementation.
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Cavalheiro, Rafael Todescato, Andréia Maria Kremer, and Régio Marcio Toesca Gimenes. "Fair Value for Biological Assets: An Empirical Approach." Mediterranean Journal of Social Sciences 8, no. 3 (May 24, 2017): 55–68. http://dx.doi.org/10.5901/mjss.2017.v8n3p55.
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Abstract In view of the difficulty in adopting the International Accounting Standard (IAS) 41, which determines the measurement of biological assets, this study aimed at empirically approaching a fair-value based methodology to evaluate biological assets, without an active market. In order to meet the study proposal, a case study with a quantitative approach was carried out to assess a soybean crop cultivated in the Mato Grosso do Sul State. Discounted Cash Flow (DCF) was the chosen evaluation method. Data collection was done through analysis of internal reports and semi-structured interviews. Few practical works detailing valuation of biological assets are available in the national and international literature; therefore, this is the main contribution of this work. Results suggest that besides using economic and accounting knowledge, it is advisable to consider agronomic knowledge since this type of information influences the valuation of biological assets in quantitative and qualitative terms. At the end, general comments and a research agenda are presented.
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Vrbka, Jaromír, and Pavla Vitková. "The applicability of FCFF method evaluating an enterprise of Real Estate segment." SHS Web of Conferences 91 (2021): 01042. http://dx.doi.org/10.1051/shsconf/20219101042.
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The article aims at evaluating a specific enterprise of the Real Estate segment using FCFF (Free Cash Flow to Firm) method. This technique determines the company’s value through free cash flows. Enterprise valuation presents a distinct discipline requiring appraiser’s deep understanding not only of the evaluated enterprise but also other external decisive influences. The theoretical part focuses on calculation procedures using The CAPM (Capital Asset Pricing Model) model quantifying separate variables that determine discount rates. The suggested technique deals with specific financial data of the company and is applicable in evaluating small and medium-sized enterprises.
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Posza, Alexandra. "REAL OPTION ANALYSIS OF VENTURE CAPITAL INVESTMENTS." Balkans Journal of Emerging Trends in Social Sciences 3, no. 1 (June 30, 2020): 64–77. http://dx.doi.org/10.31410/balkans.jetss.2020.3.1.64-77.
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Venture capital investments play an important role in the development and growth of start-up companies that are characterized by a high degree of uncertainty and growth potential, and venture capital is also one of the major sources of financing for entrepreneurial businesses. In the case of venture capital investment, staging has a huge potential, so the venture capitalists keep the right to participate in further financing rounds. The real option approach as an evaluation method provides an opportunity to evaluate this kind of investment with the help of flexibility in the case of a high degree of uncertainty. The paper puts the emphasis on the evaluation and the effectiveness of venture capital investments primarily from the aspect of real option theory tested on Hungarian venture capital cases. The paper concludes that the option-based valuation methods are more suitable for evaluating venture capital investments than others, especially the discounted cash flow method.
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Vayas-Ortega, Germania, Cristina Soguero-Ruiz, Margarita Rodríguez-Ibáñez, José-Luis Rojo-Álvarez, and Francisco-Javier Gimeno-Blanes. "On the Differential Analysis of Enterprise Valuation Methods as a Guideline for Unlisted Companies Assessment (II): Applying Machine-Learning Techniques for Unbiased Enterprise Value Assessment." Applied Sciences 10, no. 15 (August 2, 2020): 5334. http://dx.doi.org/10.3390/app10155334.
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The search for an unbiased company valuation method to reduce uncertainty, whether or not it is automatic, has been a relevant topic in social sciences and business development for decades. Many methods have been described in the literature, but consensus has not been reached. In the companion paper we aimed to review the assessment capabilities of traditional company valuation model, based on company’s intrinsic value using the Discounted Cash Flow (DCF). In this paper, we capitalized on the potential of exogenous information combined with Machine Learning (ML) techniques. To do so, we performed an extensive analysis to evaluate the predictive capabilities with up to 18 different ML techniques. Endogenous variables (features) related to value creation (DCF) were proved to be crucial elements for the models, while the incorporation of exogenous, industry/country specific ones, incrementally improves the ML performance. Bagging Trees, Supported Vector Machine Regression, Gaussian Process Regression methods consistently provided the best results. We concluded that an unbiased model can be created based on endogenous and exogenous information to build a reference framework, to price and benchmark Enterprise Value for valuation and credit risk assessment.
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Rasheed, Abdul, Muhammad Khalid Sohail, Shahab-Ud Din, and Muhammad Ijaz. "How Do Investment Banks Price Initial Public Offerings? An Empirical Analysis of Emerging Market." International Journal of Financial Studies 6, no. 3 (September 5, 2018): 77. http://dx.doi.org/10.3390/ijfs6030077.
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This study investigates that how investment banks select alternative valuation models to price Initial Public Offerings (IPOs) and examine the value-relevance of each valuation model using the data of 88 IPOs listed on the Pakistan Stock Exchange (PSX) during 2000–2016. This study investigates that investment banks used Dividend Discount Model (DDM), Discounted Cash Flow (DCF) and comparable multiples valuation models on the basis of firm-specific characteristics, aggregate stock market returns and volatility before the IPOs. In this study, a binary logit regression model is used to estimate the cross-sectional determinants of the choice of valuation models by investment banks. The results reveal that underwriters are more likely to use DDM to value firms that have dividends payout trail. The investment banks select DCF when valuing the younger firms, that have more assets-in-tangible, firms that have negative sales growth and positive market returns before the IPO; while comparable multiples are used for mature firms and firms that have less assets-in-tangible. Furthermore, this study also used OLS regressions to examine the value-relevance of each valuation model and Wald-test to examine the predictive power of cross-sectional variation in the market values. The findings unveil that P/B ratio has highest but DCF has lowest predictive power to market values. The Wald-test results depict that none of the valuation methods produces an unbiased estimate of market values.
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Brotons, Jose M., and Manuel E. Sansalvador. "A fuzzy model for the valuation of quality management system." Kybernetes 46, no. 1 (January 9, 2017): 157–71. http://dx.doi.org/10.1108/k-06-2016-0134.
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Purpose The economic effects resulting from the commitment to ISO 9001 certification is a controversial issue. Many authors have concluded about the positive economic effects resulting from the establishment of quality systems in accordance with the requirements established in the ISO 9001 standard, but other authors have not appreciated this positive relationship. The purpose of this paper is to provide a model that facilitates the valuation of the ISO 9001 quality system. Design/methodology/approach In the process of developing a valuation model, given the uncertainty this process involves, the use of fuzzy math is very useful. First, as for an internal valuation method, the authors highlight the discounted cash flow in a fuzzy environment. The internal valuation will be completed by external expert opinions. To improve the information supplied by experts, the paper makes use of the experton theory. In this context, the authors propose the aggregation of the experts’ opinion by using basic defuzzification distribution (BADD)-fuzzy induced ordered weighted averaging. Finally, the results undergo contra-expertise. After presenting the theoretical model, the authors proceed with its application by using a case study. Findings The paper develops a new method for the economic evaluation of the ISO 9001 certification. Originality/value The authors propose the valuation of ISO 9001 quality management system, and they do it using some interesting tools which fuzzy logic offers. In this way, it is possible to eliminate subjectivity and improve the final results.