Valuation Approaches and Metrics: A Survey of the Theory and Evidence

Aswath Damodaran

Foundations and Trends(R) in Finance, 2007, vol. 1, issue 8, 693-784

Abstract: Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.

Keywords: Valuation; Discounted cash flow; Capital markets (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://dx.doi.org/10.1561/0500000013 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:fntfin:0500000013

Access Statistics for this article

More articles in Foundations and Trends(R) in Finance from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().