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

Marcel Ausloos

Papers from arXiv.org

Abstract: Many still rightly wonder whether accounting numbers affect business value. Basic questions are why? and how? I 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, I 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. I point out to advantages and limitations. As applications, the proofs of the findings are illustrated on three study cases: Marks & Spencer'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.

Date: 2020-12
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Citations: View citations in EconPapers (1)

Published in Forecasting 2, 549-565 (2020)

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