Valuation accuracy and infinity horizon forecasts

Lucio Cassia and Silvio Vismara ()

No 705, Working Papers from Department of Management, Information and Production Engineering, University of Bergamo

Abstract: This paper focuses on the assumptions of infinite-horizon forecasting in the field of firm valuation. The estimate of long-run continuing values is based on the hypothesis that companies should have reached the steady-state at the end of the period of explicit forecasts, i.e. due to competition forces any eventual source of extra profitability ends. It is argued that the equivalence between cash accounting and accrual accounting is the way of verifying such steady-state assumption. The main contribution of this paper is to provide an accuracy index measuring the variance of the target prices due to variations in long-term assumptions. The efficacy of this index is validated by using Logit and Cox regression models on a sample of 784 equity reports on European companies published by sell-side analysts.

Keywords: Equity valuation; discounted cash flow; valuation accuracy (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:brh:wpaper:0705

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