Company valuation methods. The most common errors in valuations

Pablo Fernandez

No D/449, IESE Research Papers from IESE Business School

Abstract: In this paper, we describe the four main groups comprising the most widely used company valuation methods: balance sheet-based methods, income statement-based methods, mixed methods, and cash flow discounting-based methods. The methods that are conceptually "correct" are those based on cash flow discounting. We will briefly comment on other methods since -even though they are conceptually "incorrect"- they continue to be used frequently. We also present a real-life example to illustrate the valuation of a company as the sum of the value of different businesses, which is usually called the break-up value. We finish the paper with a list of the most common errors that the author has detected in the more than one thousand valuations he has had access to in his capacity as business consultant and teacher.

Keywords: Value; price; free cash flow; equity cash flow; market value (search for similar items in EconPapers)
JEL-codes: G12 G31 M21 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2002-01-11
New Economics Papers: this item is included in nep-acc and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0449

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