Model for Use of Monte Carlo Simulations in Business Valuation

Daniel Manate and Pavel Farcas

The Valuation Journal, 2010, vol. 5, issue 1, 110-131

Abstract: This paper shows the results of the numerical simulations carried out on a discounted cash flow-based enterprise valuation model created by the authors. It describes all the steps of a Monte Carlo type simulation in estimating equity capital value of an issuer listed on the Bucharest Stock Exchange (BSE). Simulated random variables had a great impact on the output variables. Input random variables were characterized by distribution functions deemed appropriate and by moments of order of I and II, obtained from historical data. The operating revenues distribution function is uniform and symmetrical around the estimated values, cantered on these values with a variation of +- 20%. This function was also considered adequate for the variation in the percentage of the net working capital (NWC) in operating revenues. For non-operating assets a Gaussian distribution function and for the Enterprise Value/Earnings Before Interest, Taxes Depreciation and Amortization multiple (EV/EBITDA) an asymmetric triangular distribution function were used, based on multiples of the median values that are characteristic of the enterprises in Central and Eastern Europe (CEE ). One single output variable, i.e. the equity capital market value, was selected. The case study concluded with an analysis of the results obtained by simulation.

JEL-codes: G11 G32 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:vaj:journl:v:5:y:2010:i:1:p:110-131

Access Statistics for this article

The Valuation Journal is currently edited by Ion Anghel

More articles in The Valuation Journal from The National Association of Authorized Romanian Valuers Contact information at EDIRC.
Bibliographic data for series maintained by Stefan Alexandru ().