Academic literature on the topic 'Discounted free cash flow method'
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Journal articles on the topic "Discounted free cash flow method"
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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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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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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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Zhukov, P. E. "New Models for Analyzing Changes in Company Value Based on Stochastic Discount Rates." Finance: Theory and Practice 23, no. 3 (June 25, 2019): 35–48. http://dx.doi.org/10.26794/2587-5671-2019-23-3-35-48.
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We propose new models for analyzing changes in the value of the company using stochastic discount rates. It is shown that for the majority of the companies under study, local changes in the rate of the company value growth (percentage changes to the previous level) are not explained by the corresponding changes neither in the weighted average cost of capital (WACC), nor in the cash flows. This fact, as well as the research results by J. Cochrane, who proved that discount rates volatility is the main contributor to price volatility, became initial prerequisites for building models based on stochastic discount rates. The work presents three models built on stochastic discount rates, where cash flows are assumed to be growing with a certain trend, and the factors affecting the price of the company are described by stochastic discount factors. These models are alternative in relation to the commonly used traditional cash flow discounting (DCF) models where the free cash flow is discounted through the WACC, or the free flow to capital at the opportunity cost of equity. The first model is used to analyze the dependence of the company value on investments. It uses free cash flow subject to zero growth. The second model uses net cash flow from operating activities plus interest, minus the minimum investment subject to zero growth. The third model uses net cash flow from operating activities plus interest adjusted to taxes. This model requires to estimate the rates of the company downsizing subject to zero investment. The third model is applicable for companies with volatile investments, where it is difficult to reliably estimate free cash flow in case of zero growth. The models are designed for analysis of the factors influencing the value of the company for value-based management. Another application of the models is the evaluation of investment value of the company and the answer to the question of its possible overestimated or underestimated value. The third way to apply this model is the empirical evaluation of the weighted average cost of capital applicable to the company’s investment projects, alternative to WACC, assessed by standard methods.
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Gallant, A. Ronald, and George Tauchen. "Cash Flows Discounted Using a Model-Free SDF Extracted under a Yield Curve Prior." Journal of Risk and Financial Management 14, no. 3 (March 4, 2021): 100. http://dx.doi.org/10.3390/jrfm14030100.
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We developed a model-free Bayesian extraction procedure for the stochastic discount factor under a yield curve prior. Previous methods in the literature directly or indirectly use some particular parametric asset-pricing models such as with long-run risks or habits as the prior. Here, in contrast, we used no such model, but rather, we adopted a prior that enforces external information about the historically very low levels of U.S. short- and long-term interest rates. For clarity and simplicity, our data were annual time series. We used the extracted stochastic discount factor to determine the stripped cash flow risk premiums on a panel of industrial profits and consumption. Interestingly, the results align very closely with recent limited information (bounded rationality) models of the term structure of equity risk premiums, although nowhere did we use any theory on the discount factor other than its implied moment restrictions.
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Marques, Mariana Titoto, Bruno José Canassa, William Aparecido Maciel da Silva, Jéssica de Morais Lima, Fabiano Guasti Lima, and Flávia Zóboli Dalmácio. "Impact of accounting choice of dividends on the company’s value: Initial evidences." Enfoque: Reflexão Contábil 38, no. 2 (September 16, 2019): 01–13. http://dx.doi.org/10.4025/enfoque.v38i2.41799.
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The theme "value" always draws attention in discussions because its concept is linked to a high subjectivity. There are many models that try to get to an asset or a company’s value, which in addition to dealing with the subjectivity of the term, also must deal with several projections. The model of free cash flow is quoted in the literature. This method is affected by the variation of working capital which is the difference between assets and liabilities that is considered operational, calculated by Fleuriet’s Model, but to classify as operational is up to the evaluator/analyst. There are many choices for those who prepare the accounting reports too, what is called in the literature as the accounting choices. Example of the accounting choices is the treatment of interest, dividend and interest on shareholders' equity. Thus, if any account is classified as operational, this could impact the calculation of working capital and maybe, the value of a firm. This study analyzed whether there is an impact on the value, calculated by the discounted cash flow method, resulting from the accounting choice of dividends. Starting from the company's cash flow approach, which is affected by working capital, the sample was made by 80 companies in the Bovespa New Market between 2011 and 2015. Based on tests of mean and sign differences, the results confirmed what was expected: the dividend affects the free cash flow calculation and, moreover, should affect the company’s value.
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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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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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Thompson, Joseph, and David Neuzil. "Providing a Framework for Testing the Reasonableness of Terminal Period Cash Flow Investments." Business Valuation Review 39, no. 1 (September 1, 2020): 5–13. http://dx.doi.org/10.5791/19-00009.1.
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Whether using the traditional Gordon Growth formula or the value driver formula, it is common for a valuer to neglect testing the reasonableness of the capitalized free cash flow used in determining the terminal value and, therefore, derive a terminal value that is incorrect. This is troubling considering how important the terminal value is when concluding an equity value; the terminal value most often accounts for a majority of the concluded enterprise value when applying the Discounted Cash Flow method. The purpose of this article is to provide a framework for testing the reasonableness of the amount of terminal cash flow that is reinvested to support the operations into perpetuity. In general, there are three potential areas for a company to reinvest into its future operations: (1) net working capital, (2) purchases of property, plant, and equipment (PP&E), and (3) other investments (e.g., research and development [R&D]). Our article provides an overview of a suggested method for analyzing and calculating the appropriate amount of investments in net working capital and PP&E under the Gordon Growth formula. We also provide an example analysis to illustrate potential issues resulting from expensed investments (e.g., R&D) when applying the value driver formula.
Dissertations / Theses on the topic "Discounted free cash flow method"
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Tatár, Dávid. "Ocenenie skupiny AAA Auto Group N.V." Master's thesis, Vysoká škola ekonomická v Praze, 2012. http://www.nusl.cz/ntk/nusl-149801.
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The objective of diploma thesis is about to define a value of a international group AAA Auto Group N. V. which operates on the czech, slovak and russian market with used cars and analysis of an ability to increase shareholder's value in the future. It is structured as an expert opinion. It defines purpose, subject and exact date of valuation, valuation method's overview, strategic (macro and micro) and financial group analysis on the main markets. Consolidated financial plan was created as a prediction with a quick financial analysis. Group was evaluated by three discounted-based method - free cash flow to firm, free cash flow to equity, discounted economic value added as they were compared to market capitalization method. Final group value AAA Auto Group N. V. to 7th of December 2012 was defined by free cash flow to equity method and compared to market capitalization method, which is determined by the market.
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Otterberg, Simon, and August Zetterberg. "Relative and Discounted Cash Flow Valuation on Swedish Listed Companies : How applicable are the methods to companies in different industries?" Thesis, Linnéuniversitetet, Institutionen för ekonomistyrning och logistik (ELO), 2019. http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-85602.
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The purpose of this thesis is to look at how the two widely used valuation approaches Free Cash Flow to Firm and Relative valuation can contribute to the explanation of market prices of shares. The study also aims to investigate if it is possible to find any significant differences between industries, while using the two valuation methods. There are a large number of models that are used to value assets and corporations, which have been used for a long time in the banking sector and similar contexts. It is widely known that a single valuation method or model which could predict a future stock price is hard to find or might even not exist. The study uses a quantitative method, in which we evaluated 36 Swedish companies, to be able to draw conclusions about the two valuation approaches. Our results suggest that the calculated prices obtained from the two methods correlate with the market price of the share, and that the result differ between different industries.
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Lančaričová, Katarína. "Ocenění podniku s promítnutím rizika do diskontní sazby." Master's thesis, Vysoké učení technické v Brně. Ústav soudního inženýrství, 2014. http://www.nusl.cz/ntk/nusl-233038.
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The master’s thesis deals with the subjective value of stock company IFE-CR, a.s. via selected revenue method. Value estimation will be made to 31. December 2013. The teoretical part explains the main concepts and describes the methodological approaches, related to the company value estimation. Theoretical basis of literature search are developed and applied to specific businness entity in practical part. This part introduces the evaluated company, includes the results of the strategic and financial analysis and in the final stage also the suggestion of value estimation.
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Ferreira, Ricardo João Dias Fernandes Lopes. "Equity Research - Sport Lisboa e Benfica - Futebol, SAD." Master's thesis, Instituto Superior de Economia e Gestão, 2017. http://hdl.handle.net/10400.5/14474.
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Mestrado em FinançasO presente estudo efetua uma análise detalhada da Sport Lisboa e Benfica SAD (SLBEN). A necessidade da realização deste estudo prende-se com o constante crescimento da Industria do futebol, com a hegemonia desportiva alcançada pelo Sport Lisboa e Benfica e ainda com o objetivo traçado pelos Diretores da empresa que pretendem efetuar uma grande mudança na sua estrutura de capital. Todo o estudo segue as normas e recomendações do CFA Institute. Para a realização deste estudo, foi tida em consideração toda a informação disponível à data de 7 de Setembro de 2017, sendo que quaisquer informações ou eventos ligados à Benfica SAD, ou ao mercado envolvente após essa data não tem qualquer impacto ou relevância para os resultados obtidos. Foram efetuadas duas abordagens para o cálculo do preço-alvo: uma avaliação relativa, de acordo com o método dos múltiplos e uma avaliação absoluta, tendo por base o método dos Fluxos de Caixa Descontados. De referir que por ambas as abordagens o preço-alvo atingido foi de €1.84, representado um potencial de valorização de 101.3%, uma vez que à data do levantamento do preço histórico da ação, encontrava-se valorizada a €0.92. Com base nesta informação a recomendação para as ações do SLBEN é de compra. De referir ainda que é assumido um risco médio uma vez que se trata de uma industria volátil em que os resultados desportivos tem alguma influencia nos resultados financeiros, bem como a baixa liquidez das ações referidas.
The present study makes a detailed analysis of Sport Lisboa and Benfica SAD (SLBEN). The need to carry out this study is related to the constant growth of the Football Industry, with the sporting hegemony achieved by Sport Lisboa and Benfica and also with the objective drawn by the Directors of the company that intend to make a major change in its capital structure. The entire study follows the standards and recommendations of the CFA Institute. In order to carry out this study, all information available as of September 7, 2017 has been taken into account, and any information or events related to Benfica SAD or to the surrounding market after this date has no impact or relevance to the results obtained. Two approaches were used to calculate the target price: a relative valuation according to the multiples method and an absolute valuation based on the Discounted Cash Flow method. It should be noted that for both approaches the target price reached was €1.84, representing a potential appreciation of 101.3%, since at the date of the historical price of the share, it was valued at €0.92. Based on this information the recommendation for the shares of SLBEN is to purchase. It should also be noted that an average risk is assumed since it is a volatile industry in which sports results have some influence on the financial results as well as the low liquidity of the referred actions.
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Siničáková, Gabriela. "Ocenenie spoločnosti Rodinný pivovar Bernard a.s." Master's thesis, Vysoká škola ekonomická v Praze, 2008. http://www.nusl.cz/ntk/nusl-9319.
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The goal of the thesis is to valuate the company Rodinný pivovar Bernard a.s. for the purpose of possible sale or merger in the future. The thesis is divided into a theoretical and a practical part. The theoretical part explains the valuation procedure, particular analyses and methods used in the practical part. A discounted cash flow method was applied, specifically the two-phased model using free cash flow to the firm. The practical part started with a strategic and financial analysis, which helped to build a financial plan. The financial plan made a basis for valuation of the company by income method.
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Lopes, Sofia Teixeira. "Equity research - Jerónimo Martins." Master's thesis, Instituto Superior de Economia e Gestão, 2020. http://hdl.handle.net/10400.5/20841.
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Mestrado em FinançasEste projeto consiste em estimar o preço alvo da ação da Jerónimo Martins para o final do ano de 2020, de acordo com as normas do ISEG do trabalho final de mestrado de Finanças. Este relatório de avaliação está de acordo com as diretrizes recomendadas do Instituto CFA. A Jerónimo Martins é uma empresa portuguesa que opera no sector de retalho e distribuição alimentar na Portugal, Polónia e Colômbia, cotada na Euronext Lisbon desde 1989, fazendo parte do índice PSI-20, com um valor de capital social de mais de €629M. Este projeto tem como objetivo analisar as demonstrações financeiras da empresa, o seu modelo de negócio, da respetiva indústria e os maiores concorrentes, como parte do processo do relatório de avaliação para estimar o preço alvo, e apresentar uma recomendação de investimento. O método escolhido para fazer a avaliação da empresa foi através dos Fluxos de Caixa Ponderados (DCF), obtendo um preço alvo no final de 2020 de €16.36, com um potencial de valorização de 19.39% comparando com o preço da ação disponível a 30 de setembro de 2020 de €13.70. A recomendação de investimento é para comprar. Complementarmente, foi usado o método dos múltiplos comparáveis através de EV/EBITDA e EV/Revenues. A atribuição de risco para a empresa é de médio risco devido à elevada competitividade existente na indústria. Os maiores riscos considerados derivam do custo da dívida, da taxa de retorno sem risco, o prémio de risco de mercado e a taxa de crescimento perpétuo.
This project consists of estimating the target price of Jerónimo Martins for the end of 2020, according to ISEG's Master of Finance Final Work Project. This Equity Research follows the CFA Institute research report recommended guidelines. Jerónimo Martins is a Portuguese company operating in the food retail and distribution sector in Portugal, Poland, and Colombia. The company is listed in Euronext Lisbon since 1989, being one of the companies included in PSI-20, with a share capital over €629M. This Masters Final Work Project analyzes the financial statements of Jerónimo Martins, its business model, the respective industry and major competitors, as part of the equity valuation process. The aim is to estimate the market value of the share at 2020 year-end and provide an investment recommendation. The methodology chosen to perform the valuation of the company's share was through Discounted Cash Flow method (DCF) reaching a target price at the end of 2020 of €16.36, with an upside potential of 19.39% comparing with the share price displayed on 30th September 2020 of €13.70. The investment recommendation is to Buy. In addition, the valuation has also used the Multiples Valuation by using EV/EBITDA and EV/Revenues. The risk assessment for the company is based on medium risk due to this industry being highly competitive. In addition, it was considered that the main risks come from the cost of debt, risk-free rate, market risk premium and perpetual growth rate.
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Almeida, Michael Aparício de. "Equity research da Air France - KLM." Master's thesis, Instituto Superior de Economia e Gestão, 2019. http://hdl.handle.net/10400.5/19085.
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Mestrado em Contabilidade, Fiscalidade e Finanças EmpresariaisA Air France-KLM (AF-KLM) é a companhia de bandeira da França, é resultado da fusão entre as empresas Air France (francesa) e KLM (holandesa) possuindo dois hubs principais situados em Paris e Schipol. O grupo é atualmente líder da europa em termos de tráfego e tem como objetivo ser uma das maiores companhias à escala global. O trabalho final de mestrado que se segue tem como objetivo principal estimar o valor intrínseco das ações da AF-KLM para 31 de dezembro de 2018. Este projeto é composto por uma revisão bibliográfica onde são analisados os métodos de avaliação possíveis e a partir da qual é definida a metodologia para este mesmo projeto. Foi também feita uma análise em relação ao ambiente macroeconómico, da indústria e especificamente da AF-KLM. De forma a calcular o valor intrínseco procedeu-se à avaliação por fluxos de caixa atualizados baseado em valores de FCFF pelo qual foi determinado um valor intrínseco de 11.33 euros para as ações da AF-KLM para a data de 31 de dezembro de 2018. Este valor sugere que as ações se encontram subvalorizadas e que possuem um potencial de crescimento de 19.55% face ao preço de 9.48 euros registado a 31 de dezembro de 2018. Através da avaliação relativa foram utilizados dois múltiplos, em que o enterprise valueto-EBITDA resultou num preço de 23.5 euros por ação e o price-to-earnings foi igual a 5.3 euros por ação culminando numa média de 14.43 euros por ação que corresponde a um potencial de crescimento de 52.2%.
Air France-KLM (AK-KLM) is the flag carrier of France resulted of the fusion between Air France (french) and KLM (dutch). It has two main hubs located in Paris and Schipol. The group is the current european leader in passenger traffic and aims to be one of the world's best airline companies. The following project aims to estimate the intrinsic value of AF-KLM's stock price as of December 31, 2018. It consists of a literature review where possible evaluation methods are analysed from which the methodology of this project is defined. An analysis was also made of the macroeconomic environment, industry and the company's specifics. In order to estimate the intrinsic value, cash flow discount model based on FCFF values was carried out whereby an intrinsic value of 11.33 euros was determined for AFKLM's shares as of 31 December 2018. This result suggests that shares are undervalued and have a growth potential of 19.55% compared to the closing price of 31 December 2018 (9.48 euros). Through the relative valuation two multiples were used, in which enterprise-value-to-EBITDA resulted in 23.5 euros per share and where the price-toearnings ratio gave a price of 5.3 euros per share, culminating in an average of 14.43 euros per share which corresponds to a growth potential of 52.2%.
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Salgado, Nicky. "Equity research - Skechers U.S.A. Inc." Master's thesis, Instituto Superior de Economia e Gestão, 2019. http://hdl.handle.net/10400.5/19663.
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Mestrado em FinançasO trabalho elaborado consiste numa avaliação do preço por ação da Skechers U.S.A. Inc. para o final de 2019FY, de acordo com o projeto final do Mestrado em Finanças do ISEG. Este relatório tem por base pressupostos que considero futuramente viáveis para os próximos cinco anos de atividade e que baseiam no histórico da performance dos últimos três anos, das tendências da indústria e de projeções macroeconómicas. Todo o estudo é feito através do formato CFA Institute.O preço-alvo foi obtido através de um método de avaliação absoluto do Discounted Cash Flow, especificamente Free Cash Flow to the Firm. Adicionalmente, para complementar a nossa recomendação, foi utilizado o método do Adjusted Present Value. Foi utilizado o método de avaliação relativa, o método dos Múltiplos Comparáveis, foram usados o EV/EBITDA e o EV/SALES.A análise de sensibilidade e uma simulação de Monte Carlo foi realizada para complementar a análise. A recomendação final para a Skechers U.S.A. Inc é de STRONG BUY, com um preço alvo de 43.38 dólares por ação, representando um potencial de valorização de 27.01%, face ao valor atual de 31.66 dólares por ação no dia 30 de Agosto de 2019. A nossa avaliação de risco estima um risco médio para a empresa. Para esta recomendação, considero que os principais riscos vão para a taxa de crescimento perpétua, a taxa de imposto, a taxa de retorno sem risco e para o prémio de risco de mercado.
The elaborated work consists on an Equity Research of Skechers U.S.A. Inc. for the end of 2019F, according to ISEG's master's in finance final work project. This report was based on the assumptions that I consider to be available for the next five years based on the historical performance of the last three years, industry's trends and macroeconomic projections. The entire study is done through the CFA Institute format. The price target was obtained through an absolute valuation method, the Discounted cash Flow, more specifically the Free Cash Flow to the Firm. In addition, to support our recommendation, we performed the Adjusted Present Value method. We used a relative valuation method, the Comparable multiples, using EV/EBITDA and EV/SALES. A sensitivity analysis and a Monte Carlo simulation were performed to complement the analysis. Our final recommendation for Skechers U.S.A. Inc. is to STRONG BUY, with a price target of 43.38 dollars per share, representing an upside potential of 27.01%, in comparison with the closing price of 31.66 dollars per share in August 30st, 2019. Our risk assessment estimates a medium risk for the company. For this recommendation, we consider that the mains risks are related to perpetual growth rate, tax rate, risk-free rate and market risk premium.
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Thakarshi, Bhavik Jayesh. "Equity research - The Home Depot, INC." Master's thesis, Instituto Superior de Economia e Gestão, 2020. http://hdl.handle.net/10400.5/20850.
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Mestrado em FinançasEste estudo contém a avaliação do The Home Depot, Inc, elaborado em conformidade com o Projeto de Trabalho Final do Programa de Mestrado em Finanças do Instituto Superior de Economia e Gestão (ISEG). O Relatório de Avaliação segue as recomendações do Instituto CFA (Pinto, Henry, Robinson e Stowe, 2010). Esta pesquisa é emitida tendo em conta a informação pública sobre The Home Depot, Inc disponível em 30 de Outubro de 2020. Deste modo, o relatório não tem em consideração eventos ou circunstâncias que tenham ocorrido após essa data. Os pressupostos considerados para realização deste trabalho foram o resultado de uma análise de dados históricos divulgada publicamente pela empresa, das tendências da indústria e das projeções macroeconómicas. A preço-alvo foi obtido com recurso a métodos de avaliação absoluta, especificamente o método de Discounted Cash Flow (DCF). Adicionalmente, foi utilizado o Dividend Discount Model (DDM) e um método de avaliação relativo, o método dos Múltiplos Comparáveis. Uma análise de sensibilidade e uma simulação de Monte Carlo foram realizadas para complementar a análise. Com um preço-alvo de $312.23 para o fim do ano 2020, representando uma potencial valorização de 18% aquando comparado com o preço de fecho a 30 Outubro de 2020 de $265.70, a recomendação final para The Home Depot, Inc é de 'Compra', tendo em consideração os riscos que podem ocorrer e afetar o desempenho da empresa. A nossa avaliação de risco estima um médio para a empresa.
This study contains the valuation of The Home Depot, Inc elaborated in accordance with the Lisbon School of Economics & Management´s (ISEG) Finance Master´s Final Work Project. Our Equity Research follows the adaptable format of a research report recommended by the CFA Institute (Pinto, Henry, Robinson, and Stowe, 2010). This research is issued considering the public available information on The Home Depot, Inc on October 30th, 2020. Thus, the report does not consider any events or circumstances which have arisen after this date. The assumptions considered to conduct this work were the result of a historical data analysis publicly disclosed by the company, industry's trends and macroeconomic projections. The price target was obtained through an absolute valuation method, specifically the Discounted Cash Flow (DCF) approach. In addition, was used the Dividend Discount Model (DDM) and a relative valuation method, the Multiples approach. A sensitivity analysis and a Monte Carlo simulation were performed to further complement the analysis. With a price target of $312.23 for YE2020, representing an upside potential of 18% when compared to the closing price on October 30th 2020 of $265.70, the final recommendation for The Home Depot, Inc stands for 'Buy', taking into consideration, the risks that may occur and that can affect the company's performance. Our risk assessment estimates a medium risk for the company.
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Čunková, Ludmila. "Ocenění společnosti Povltavské mlékárny, a. s." Master's thesis, Vysoká škola ekonomická v Praze, 2009. http://www.nusl.cz/ntk/nusl-15651.
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The main target of this thesis is to determine the value of the company Povltavské mlékárny, a.s. The thesis is divided into two parts, theoretical and practical. There is described the basic steps of the valuation process and some methods in the theoretical part. In the practical part there are used these methods to determine the value of the company. For the valuation a discounted free cash flow to the equity method in two stage model was used.
Books on the topic "Discounted free cash flow method"
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Campbell, McLachlan, Shore Laurence, and Weiniger Matthew. Part III Substantive Rights, 9 Compensation. Oxford University Press, 2017. http://dx.doi.org/10.1093/law/9780199676798.003.0009.
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Chapter 9 examines the obligation upon the State committing the international wrong to make reparation through restitution or monetary compensation. It first considers the international law standards of compensation for expropriation before proceeding to discuss the range of options adopted in practice by arbitral tribunals. It then looks at practical application of the main methods of valuation used to determine the appropriate level of compensation, particularly the ‘discounted cash flow’ method, along with the issue of causation in international law. The chapter concludes with an analysis of five topics that are assuming greater practical importance in the approach of arbitral tribunals to remedies: the award of moral damages in exceptional circumstances; the claimant’s duties of mitigation of loss; the potential for the availability of non-pecuniary remedies; interest; and costs.
Book chapters on the topic "Discounted free cash flow method"
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Isaac, David, and John O’Leary. "The investment method — discounted cash flow approaches." In Property Valuation Principles, 162–80. London: Macmillan Education UK, 2012. http://dx.doi.org/10.1007/978-1-137-01728-4_9.
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Selezneva, E. Y., S. Y. Rakutko, O. S. Temchenko, D. V. Skalkin, and N. V. Belik. "Application of the Discounted Cash Flow Method to Assessment of the Business Investment Attractiveness." In Proceeding of the International Science and Technology Conference "FarEastСon 2020", 387–95. Singapore: Springer Singapore, 2021. http://dx.doi.org/10.1007/978-981-16-0953-4_39.
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d’Amato, Maurizio, and Yener Coskun. "An Application of Regressed Discounted Cash Flow as an Automated Valuation Method: A Case in Bari." In Advances in Automated Valuation Modeling, 345–59. Cham: Springer International Publishing, 2017. http://dx.doi.org/10.1007/978-3-319-49746-4_19.
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Goker, Orhan, and Sinem Derindere Köseoğlu. "Challenges in Valuation by Using Discounted Free Cash Flow Method." In Advances in Business Information Systems and Analytics, 60–78. IGI Global, 2020. http://dx.doi.org/10.4018/978-1-7998-1086-5.ch004.
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It is generally believed that, in determining the real value of a company, the best results are obtained by using the Dicounted FCF method. The overall value of the firm itself or the value of equity is determined by discounting the “appropriate” cash flows by “appropriate” discount rates. We basically need to determine three major parameters: free cash flows, cost of capital, and the terminal value. All these three parameters have sub-parameters within themselves. Because all these parameters and their sub-parameters are to be future values, many factors like the riskiness of the firm in question, its leverage ratio, whether it is a profitable firm, newly-established or public company will not only influence the calculation of these parameters/sub-parameters but will also make it more difficult for the analyst. This chapter explains what variables are needed for company valuation, how they are determined, and what problems may be faced in calculating these values. Finally, authors propose solutions to all the problems analysts will likely face.
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"Discounted Cash Flow Method*." In Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration, 205–30. Brill | Nijhoff, 2018. http://dx.doi.org/10.1163/9789004357792_009.
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"◾ Valuing Investment Opportunities: The Discounted Cash Flow Method." In Quantitative Finance, 44–49. Chapman and Hall/CRC, 2014. http://dx.doi.org/10.1201/b16039-7.
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"Free Cash Flow, Terminal Value, and Discount Rates and Methods." In Corporate Valuation Modeling, 185–214. Hoboken, NJ, USA: John Wiley & Sons, Inc., 2015. http://dx.doi.org/10.1002/9781119202882.ch9.
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Zambujal-Oliveira, João, and César Serradas. "Valuation of Technology-Based Companies." In Advances in Business Information Systems and Analytics, 108–22. IGI Global, 2014. http://dx.doi.org/10.4018/978-1-4666-4983-5.ch007.
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The cash flows of technology-based companies show high degrees of uncertainty. As traditional valuation methods can hardly capture these characteristics, they are insufficient for valuing these kinds of companies. On the contrary, real options theory can quantify the value associated with management flexibility, growth opportunities, and synergies. This chapter assesses the corporate value of a technology-based company. By gathering information from historical cash flows and using Monte Carlo simulations, the chapter generates future returns paths and primarily uses them for valuations by discounted cash flow methods. The generated volatility is subsequently used to value the measurement carried out by real options theory. The value obtained under the real options binomial approach is about 40% higher than the one obtained by the discounted cash flow method. This difference can be attributed to the value associated with uncertainty and flexibility.
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Akkaya, Murat. "Startup Valuation." In Advances in Business Information Systems and Analytics, 137–56. IGI Global, 2020. http://dx.doi.org/10.4018/978-1-7998-1086-5.ch008.
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This chapter analyzes startups and methods for valuing them. Startup means a process for activating a job or action. Startup as a young innovative company has a dominant and key role in modern economies. Startups are newborn or young companies struggling to achieve their potential and growth. One of the most challenging issues in corporate finance is to decide on firm valuation. It is even more difficult to evaluate companies that do not generate income. Deciding the value of a Startup is similar to valuing a specific table. The valuation at this stage is very important. Since startup is a company, it is necessary to look at the methods developed specifically for Startups. Nasser (2016) determines 9 different valuation methods to determine Pre-Money Valuation; Berkus Method, Risk Factor Summation Method, Scorecard Valuation Method, Comparable Transactions Method, Book Value Method, Liquidation Value Method, Discounted Cash Flow Method, First Chicago Method, and Venture Capital Method. Traditional valuation methods are also applicable in valuation.
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Aroul, Ramya Rajajagadeesan. "Optimizing Investment Decisions Using DCF, Decision Tree Analysis, and Real Options Analysis." In Handbook of Research on Holistic Optimization Techniques in the Hospitality, Tourism, and Travel Industry, 98–114. IGI Global, 2017. http://dx.doi.org/10.4018/978-1-5225-1054-3.ch004.
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Large scale infrastructure expansions in hotels are exposed to uncertainty. Since the costs involved in these expansion projects are high and often irreversible, hotels would benefit from analyses that incorporate uncertainty along with traditional valuation techniques like the discounted cash flow (DCF) method. Decision tree analysis (DTA) and real options analysis (ROA) have been in use for the past couple of decades to handle uncertainties and optimize investment decisions. DTA provides a distinct approach to strategic investments that quantitatively takes into account the uncertainties involved in the investments. Under uncertainty, the decision about whether to expand is analogous to the decision about whether to exercise an American call option. By using ROA to the hotel expansion scenario, managers can incorporate and quantify, flexibility and timing in their analysis. The objective of this chapter is to detail the DCF, DTA and ROA methodologies and their applications specific to hotel expansion investments.
Conference papers on the topic "Discounted free cash flow method"
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Sasongko, Affandy, and Edward Tanujaya. "Valuation Analysis of PT XYZ's Initial Share Value Regarding the 2020 IPO Plan with Discounted Free Cash Flow and Relative Valuation Method." In Proceedings of the 2nd International Conference of Business, Accounting and Economics, ICBAE 2020, 5 - 6 August 2020, Purwokerto, Indonesia. EAI, 2020. http://dx.doi.org/10.4108/eai.5-8-2020.2301192.
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Hendrawan, Riko, and Ernis Himawan. "Assessing Free Cash Flow to Firm and Relative Valuation Method in Agriculture Plantation Companies Listed in Indonesia Stock Exchange in 2018." In The 2nd International Conference on Inclusive Business in the Changing World. SCITEPRESS - Science and Technology Publications, 2019. http://dx.doi.org/10.5220/0008427800850093.
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Hendrawan, Riko, and Florent Ardhi Permadi. "Do Free Cash Flow to Firm and Relative Valuation Method Work in Valuing Building and Construction Companies? : A Test in IDX in 2018." In The 2nd International Conference on Inclusive Business in the Changing World. SCITEPRESS - Science and Technology Publications, 2019. http://dx.doi.org/10.5220/0008427700740084.
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Yeter, Baran, Yordan Garbatov, and Carlos Guedes Soares. "Risk-Based Multi-Objective Optimisation of a Monopile Offshore Wind Turbine Support Structure." In ASME 2017 36th International Conference on Ocean, Offshore and Arctic Engineering. American Society of Mechanical Engineers, 2017. http://dx.doi.org/10.1115/omae2017-61756.
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The present work carries out a multi-objective design optimization of a monopile offshore wind turbine support structure. Three objective functions are created related to the minimization of the total construction cost of the monopile support structure, fatigue damage, and permissible stress ratio. The construction cost takes into account the costs associated with welding and labor. The constructional limitations in the offshore industry take into consideration in the selection of the upper boundaries of the design variables. The reliability index is employed to identify the topology of the structure as a part of the Pareto frontier solution in reducing the failure probability for the critical limit states and satisfying the target reliability level. A risk-based assessment of the optimal designs is performed and the output is used to update the life-cycle cost assessment. The ultimate optimization target is deemed to be the minimization of the levelised cost of energy, which is estimated based on the discounted cash-flow method considering the life-cycle costs constituting CAPEX and OPEX.
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Lall, Pradeep, Ryan Lowe, and Kai Goebel. "Cost Assessment for Implementation of Embedded Prognostic Health Management for Electronic Systems." In ASME 2012 International Mechanical Engineering Congress and Exposition. American Society of Mechanical Engineers, 2012. http://dx.doi.org/10.1115/imece2012-93058.
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Prognostic health management (PHM) is a method for assuring the reliability of a system by monitoring the system in real time as it is used in the field. As the system wears out, but before failure, information that facilitates decision making about the future use of the system is delivered to the user. In this paper, a cost justification has been developed for incorporating the additional circuitry needed to enable prognostics for electrical components directly onto a functional circuit board. Implementing PHM capability for circuit boards will add additional cost to a system, so high reliability systems where the cost of failure is high are easiest to cost justify for prognostics. Aerospace, defense and automotive, applications qualify as high reliability systems. Application domains that require high uptime, minimal amounts of unplanned maintenance, and controllable operating costs can also be cost justified for prognostics since they can benefit from the pro-active management of failures facilitated by PHM. Intangible criteria such as safety or the cost of human life also motivated the need for PHM, so often times projects are labeled strategic, and not subjected to the discipline of a financial analysis. This paper will show rigorous methods for assessing the decision to invest in PHM for electronics. The uncertain nature of research and development (R&D) and difficult to predict future economic conditions is not well captured by traditional discounted cash flow (DCF) methods. An approach known as the Datar-Mathews (DM) method will extend the DCF methods to be equivalent to a real options analysis and the Black-Scholes formula. The DM method is intuitive and uses concepts familiar to most engineers and technical managers.
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Piacentino, Antonio, and Fabio Cardona. "A Thermoeconomics-Based Approach to the Integrated Optimization of Design and Operation for Decentralised Energy Systems and Variable Load Conditions." In ASME 8th Biennial Conference on Engineering Systems Design and Analysis. ASMEDC, 2006. http://dx.doi.org/10.1115/esda2006-95096.
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The many comprehensive approaches formulated for the optimization of large industrial energy systems have been rarely applied to small and medium scale units, because of the difficulties in handling a continuously variable energy demand and of the lower margins for energy and emissions saving. Today, the growing interest for decentralised energy systems in the civil sector stimulates major efforts for the optimization of such plants, with a particular focus on the control system and on a management strategy able to exploit the opportunities existing in the free energy market. In this paper a methodology is proposed for the optimization of design and operation of variable demand systems supplying different non-storable products. In such systems, efficiency penalty due to off-design operation is usually assumed as a key issue; the proposed method, however, introduces an original and meaningful interpretation of the capital depreciation cost and keeps into account the possibility for grid connected power systems to produce surplus electricity to be sold. The proposed optimization process, based on the Lagrange multipliers method, assumes either an economic indicator (the Net Present Value, NPV or the Net Cash Flow, NCF) or a function depending only on fuel consumption (as usually proposed in literature) as objective function. Main advantages of the proposed method are the high level of integration between the optimization of design and operation and the possibility to automate the algorithm in order to drive a real-time optimized control system aiming to achieve the maximum profitability or the maximum primary energy saving.
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de Brito Garcia, Claudio, and Leandro Bastos Machado. "Decision Making Under Uncertainty in Pipeline Projects Using Monte Carlo Simulation." In 2004 International Pipeline Conference. ASMEDC, 2004. http://dx.doi.org/10.1115/ipc2004-0241.
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Uncertainty about a situation can often indicate risk, which is the possibility of loss, damage, or any other undesirable event. Most people and organization desire low or minimized risk, which would translate to stand to a scenario of high probability of success, profit, or some form of gain. This work shows the importance of risk analysis when it comes to compare two capital investment projects in the natural gas transmission business. A transmission company needs to choose between two alternatives for capacity expansion of a pipeline, with a maximum value for the transmission tariff previously agreed to the shipper. At first, the transmission tariff is calculated by the conventional method that comprises iterative calculation from an arbitrary value, until the project Net Present Value (NPV) reaches zero. Once calculated, the lower of the transmission tariffs associated to the two expansion projects indicates the best choice. That’s the way the majority of companies perform their economical analysis of the proposed problem. Monte Carlo Simulation risk analysis technique is a powerful tool to asses the risk associated to a capital investment project, which can be summarized as the probability of undesired results. The risk calculation is based on the uncertainties associated to the input data used to build the project free cash flow, and the simulation produces a frequency distribution, or histogram, for, the NPV of a project. As will be seen in the work, the investment with the largest expected NPV may not always be the best investment alternative.