Valuation Models Applied to Value-Based Management—Application to the Case of UK Companies with Problems

Marcel Ausloos

Forecasting, 2020, vol. 2, issue 4, 1-17

Abstract: Many still rightly wonder whether accounting numbers affect business value. Basic questions are “why?” and “how?” We aim at promoting an objective choice on how optimizing the most suitable valuation methods under a “value-based management” framework through some performance measurement systems. First, we present a comprehensive review of valuation methods. Three valuations methods, (i) Free Cash Flow Valuation Model (FCFVM), (ii) Residual Earning Valuation Model (REVM) and (iii) Abnormal Earning Growth Model (AEGM), are presented. We point out advantages and limitations. As applications, the proofs of our findings are illustrated on three study cases: Marks & Spencer’s (M&S’s) business pattern (size and growth prospect), which had a recently advertised valuation “problem”, and two comparable companies, Tesco and Sainsbury’s, all three chosen for multiple-based valuation. For the purpose, two value drivers are chosen, EnV/EBIT (entity value/earnings before interests and taxes) and the corresponding EnV/Sales. Thus, the question whether accounting numbers through models based on mathematical economics truly affect business value has an answer: “Maybe, yes”.

Keywords: valuation models; value-based management; performance measurement; accounting numbers; UK problems (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2571-9394/2/4/29/pdf (application/pdf)
https://www.mdpi.com/2571-9394/2/4/29/ (text/html)

Related works:
Working Paper: Valuation Models Applied to Value-Based Management. Application to the Case of UK Companies with Problems (2020)
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:gam:jforec:v:2:y:2020:i:4:p:29-565:d:460699

Access Statistics for this article

Forecasting is currently edited by Ms. Joss Chen

More articles in Forecasting from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().