VALUATION OF GROWTH FIRMS: THEORETICAL MODELING

Damir Tokic ()
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Damir Tokic: University of Houston – Downtown, Houston, USA

Economic Thought and Practice, 2005, vol. 14, issue 1, 13-23

Abstract: This study models the value of growth firms using the modified investment opportunities approach to valuation. The proposed model suggests that the value of a growth firm is function of: 1) profit margins, 2) investments in growth, and 3) the level of growth opportunity. Theoretical predictions suggest that the value is maximized when: 1) the growth opportunity exists and profitability multipliers are significant, 2) profit margins are high, and 3) the investment in growth is optimal.

Keywords: growth firms; profit margins; growth opportunity; profitability multipliers (search for similar items in EconPapers)
JEL-codes: D92 (search for similar items in EconPapers)
Date: 2005
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