Valuation of an Equity Interest

Lawrence D. Schall ()
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Lawrence D. Schall: Foster School of Business, Box 353226, University of Washington, Seattle, Washington 98195-0001, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2015, vol. 18, issue 04, 1-25

Abstract: The equity cash flow approach to valuing an equity interest is intuitive, rigorous, and practical, and is easily implemented using historical and forecasted statements of cash flows. This method is compared with popular alternatives. The equity cash flow equation for valuing equity is derived taking into account employee compensation expense in the form of equity participation (stock options and stock grants). This is of particular interest in light of the importance of options and grants as a form of compensation.

Keywords: Equity cash flow; equity value; statement of cash flows; stock grants; stock options (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S0219091515500216

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